Monday, November 24, 2008

Are You Sitting on Your Hands 
Watching the Economic Train Wreck?

By Fred Leeb

Are you waiting for a bell to ring or a light to turn green announcing the return of "business as usual" and that it is OK again to go on working in your comfort zone, maybe just working a little harder?  If so, you are wasting extremely valuable time and resources that you need to use now to strengthen your organization.  In this geographic area, there is now a perfect storm causing our own version of a category five Hurricane Katrina.  It is slamming into nonprofits right at the time fundraising should be peaking.  This perfect storm is being caused by a disaster in the auto industry, lower state government revenues and spending, a meltdown in real estate, huge losses in stock portfolios (including retirement accounts) and tremendous uncertainty in what the future holds, causing pullbacks in all types of spending.

The Dow Jones already has dropped by 39 percent since it peaked at 14,164.53 on Oct. 9 a year ago.  The downturn translates into a paper loss of $8.3 trillion, based on figures measured by the Dow Jones Wilshire 5000 Composite Index.  Stock market turmoil has wiped out roughly $2 trillion of Americans' retirement savings over the past 15 months, according to the Congressional Budget Office.

It is up to you to take the initiative for change; you certainly can not depend on the government to do anything to make your agency more successful. If you don't take action to improve your organization now the only thing you will be waiting for will be your competitors to take your market share-the pie is getting much smaller (particularly in Michigan) and only the strongest will survive. 

On the other hand, this is your opportunity to turn lemons into lemonade.  I believe you should use today's economic pressures as a crucible to force yourself to make the good decisions that you should have made long ago.  Some of the actions that make sense right now, no matter what happens in the stock market or what the government does are as follows:

1.      Improve communications with your stakeholders (vendors, customers, board members, employees, lenders, etc.) to cause them to operate with you as team members; ask for help before the situation becomes desperate or there is a crisis.  The best CEO's recognize that self-reliance alone can be counterproductive; they are always working hard to seek out new alliances, ideas, and methodologies.

2.      Consider beefing up mission-oriented for-profit business ventures to generate new sources of cash flow, reduce dependency on fundraising and help your community.  A for-profit business can provide a critical source of discretionary cash, necessary for building administrative capacity and for building quality programming.  It also can be under your own control rather than that of a less-predictable public or private funding source.  That means, however, that it must be run as a successful business so that it throws off cash and not be subsidized by other programming or endowment funds.   A business consultant can be a tremendous help in achieving success in these efforts.

3.      Analyze merger opportunities to gain economies of scale, reduce cost and achieve operating efficiencies.  Don't wait until your organization is in such desperate straits that you will have little or no say in whether you merge or not, who you merge with and how the surviving entity will be managed.

4.      Don't give your bank any excuse to pull your credit line.  Do your best to keep your credit record clean, comply with all the covenants in your bank loan documents, prepare and report financial results on time and pay your debt service promptly.

5.      Collect receivables promptly and do not let inventory sit.  If these assets are not managed aggressively, they will suck up your cash and weaken your ability to take advantage of business options in the future.  Also, you actually will be more respected if you stay on top of collections.  Keep your powder dry (maximize your cash availability).

6.      Take advantage of this economy's expectations for low profits--raise cash by selling off slow-moving and obsolete inventory and by settling disputes over receivables and legal issues, even if this will generate losses.

7.      Focus your most valuable resources (your management time and your cash) to make your organization strongest in the areas with the greatest opportunities for success, while staying within the bounds of your mission.  Cannibalize your other assets in non-essential areas, if necessary, to be able to sufficiently fund your highest priority program areas.  Now is the time to cut all low-performers and dead wood; these are luxuries that your agency can no longer afford.

8.      Make the tough decisions now to cut out the programs that diverted your attention and have been bleeding.  Hire an experienced turnaround consultant to help if the decisions are complex, sensitive relationships require outside objectivity, or you need more experienced manpower to implement change.  Don't lose sight of the fact that procrastination now could result in much greater losses than any reasonable consulting fees.  Use your rifle, rather than a shotgun, to focus your resources and achieve success.

9.      Listen to your employees to get their ideas on potential improvements.  Every employee has first-hand experiences and can have meaningful input on what is really happening in your organization, particularly when the devil is in the details (as is frequently the case).  Utilize a turnaround consultant, if necessary, to conduct confidential discussions and utilize the consultant's wide-ranging perspectives to sift and evaluate the best ideas properly.   

10.    Develop detailed contingency plans now in case your holiday season fundraising is only 50% of what you had budgeted earlier.  Utilize your board to gain consensus, in advance, on these action plans.

I believe that we are still at the beginning of extremely difficult economic times.  In September, car sales declined by 20-40% and on October 9, 2008, GM's stock value fell to only $2.6 billion, down 89% from its 52-week high set on October 12, 2007.  In the United States, J.D. Power expects 2009 industry sales of 13.2 million. U.S. auto sales were roughly 16.15 million units in 2007.  "While the global automotive industry is clearly experiencing a slowdown in 2008, the global market in 2009 may experience an outright collapse," said Jeff Schuster, J.D. Power's executive director of automotive forecasting.   A potential collapse of GM, Ford or Chrysler can not be ruled out.

We also have not yet seen the impact of the huge new government borrowings on the credit markets, potential new taxes, increased job losses, and further losses of consumer credit and confidence (e.g., the inability to borrow on home equity loans, tightening credit card guidelines and more difficult car loan approval processes). 

Every day that goes by is extremely valuable.  Nonprofit leaders have many positive actions available but they must take advantage of every opportunity to change, without wasting any time, to strengthen their position and be one of the survivors of these extremely difficult times.

Wednesday, November 12, 2008

Turnaround of the Year Award Presented to Fred Leeb & Associates

Press Release

The Turnaround of the Year Award was presented to Fred Leeb &
Associates for its work to orchestrate the successful turnaround
of Starfish Family Services located in Inkster, Michigan. The
turnaround team consisted of: Fred P. Leeb, Fred Leeb & Associates, LLC-- Starfish Interim CEO and Geni Giannotti, Fred Leeb & Associates, LLC-- Starfish Interim COO

Fred Leeb said, "It is extremely fulfilling
periodically to take on a challenge that not only helps business
but also helps the community where the needs are greatest."

Bill Mitchell, the Starfish Chairman of the Board, said, "We could
not be happier with the results achieved in such a relatively short
time.... Our relationship with our bank is excellent. Our
relationship with the various government agencies that fund our
operations has greatly improved as our financial condition has
improved. Our auditors are happy with the turnaround.... You
were a true partner with the Board and we are very grateful. I
can recommend you without reservation...."

Sunday, November 9, 2008

REPORTER'S NOTEBOOK: Nonprofits tap turnaround pros | Crain's Detroit Business

REPORTER'S NOTEBOOK: Nonprofits tap turnaround pros | Crain's Detroit Business

November 09, 2008 8:00 PM

REPORTER'S NOTEBOOK: Nonprofits tap turnaround pros

By Sherri Begin Welch
Using a turnaround expert in a for-profit business, especially among automotive companies, is nothing new.

But nonprofits also are beginning to tap them in the face of continual declines in funding and ever-rising demand for services.

Local firms that provide operational consulting for nonprofits include UHY Advisors MI Inc., Plante & Moran P.L.L.C. and Fred Leeb & Associates L.L.C./Nonprofit Management Group L.L.C. under managing director Fred Leeb.

“This is going to be happening more and more as a result of the pie getting smaller,” because of declines in government, private and individual support, Leeb said.

Leeb and his partner, Geni Giannotti, originally worked as consultants at Southfield-based turnaround firm Alex Partners.

The Starfish Family Services board of directors contacted them after operating in the red for several years.

“Starfish was facing some cash flow issues, and the board wasn't getting the timely and accurate reporting we would have liked two to three years ago,” said Chairman Bill Mitchell, retired founder of MB Associates in Southfield.

“Through all of that, Starfish continued to do a terrific job for all of its clients,” Mitchell said.

“They just put mission in front of margin for a while.”

Leeb and his team worked with Founder and CEO Ouida Cash, who'd planned to retire but became increasingly ill as she battled leukemia.

Cash was 100 percent behind the idea of working with a turnaround consultant, Mitchell said. Eventually, she stepped aside and Leeb became interim CEO of the agency.

With assistance from Leeb and his team, Starfish increased its level of government reimbursement through more detailed accounting, implemented tighter controls over expenditures and was able to secure more favorable credit terms with its lenders.

Starfish and Property Link for Nonprofits Inc., which holds its property, expects to post excess funds of more than $600,000 for fiscal 2008 ended Sept. 30, said CFO Anne-Marie Smith.

That's up from reported losses of $417,607 in 2005 and $1.5 million in 2004, according to its 990 tax forms.

For their work at Starfish, Leeb and Giannotti recently won the Turnaround of the Year award from the Turnaround Management Association, Michigan (Detroit-Grand Rapids) Chapter. Mitchell also was awarded for his leadership from the Association of Fundraising Professionals .

“Very often, nonprofit executives don't have experience with times like these,” Leeb said.

“They've been fighting the battle of having lower revenue, but now I think they are going to have to do something differently.”