The Top Six Overlooked Business Assets  

 

By Fred Leeb

 

Year-end holidays are traditionally a time for thanksgiving, reflection, appreciation of the people around us and preparation for the new year and upcoming winter.  This year, we also must prepare for a very harsh business climate in which the economic pie is getting smaller.  It is the perfect time to take a fresh look at all of your business assets, maximize their value using new techniques and begin to implement improvements.  This newsletter is designed to give you some tangible ideas on how to begin this process now.

 

Often CEO's are Too Close to Day-to-day Operations to Fully Appreciate the People and Assets Around Them   The Best CEO's Recognize They Should Bring in Consultants Periodically to Help Them Unlock the Full Potential of Their Assets

We have found that many of our clients have untapped strengths that represent major opportunities to improve cash flow.  Even though business owners have worked hard for years to build up these strengths, they are too close to day-to-day operations to see them.  They need an experienced and unbiased outsider to help unlock this potential.  When times were better, CEO's could be content to rely on themselves and not to take this step but this is a luxury that they can not afford any longer.  The best business owners recognize they must constantly hunt for new ideas and business perspectives, often with the help of objective consultants, to achieve the highest returns on their assets.    The one thing we know about this economy is that it will get much tougher; the business cycle will never bring us back to 2007.   If we use all of our resources creatively now, however, we will be on track to thrive again rather than just survive over the next few years.

The Top Six Overlooked Business Assets

During our 20 years of consulting with many small, medium and large businesses we have been able to take advantage of many opportunities to help our clients quickly increase their cash flow.  Some of the most significant ways to increase the return on unrecognized and underutilized assets are as follows:   Employee knowledge:  The employees frequently know more about the business, on a collective basis, than the CEO and are a tremendous untapped source of valuable information.  By  bringing in a consultant to interview employees, the CEO is telling the employees that he/she is serious about wanting their input, there are new opportunities for employee advancement and visibility (by providing new ideas) and that the employees can speak confidentially, if desired.  Remarkable value can be generated in many areas including the following: 1) Employees have the most face-to-face/first-hand meetings with customers and vendors.  During these meetings and discussions, they get valuable feedback on product pricing, quality, delivery timing, product features, packaging and potential add-ons.  2) Employees know which employees and family members are pulling their weight, which have leadership potential, and which are committed to the success of the business and the cause of improving morale.  They also know who can benefit the most from additional training and who are entitled to promotions. 3) Employees have ideas for potential innovations, cost reductions, new efficiencies, decreases in "shrinkage", better usage of inventory and methods of collecting receivables.   Ability and energy:  Even though many managers are highly capable, the CEO often does not allow them to manage.  As a result, many significant risks and opportunities are not addressed.  In fact, the company may be limited more by the lack of management resources than a lack of cash.  CEO's frequently could give much more responsibility and authority to their management team.  This would take some of the burden off the CEO, enable time for high-return special projects, and cause the business to be managed much more effectively.  The CEO should remember that these managers were hired because it was recognized long ago that it was not in the best interest of the company for the CEO to do everything him/herself.  On the other hand, if the CEO can not trust the managers to do their job, the managers should be replaced.  Otherwise, the CEO is perpetuating low returns on the company's investments in managers' salaries and training dollars.  The managers can and should be the source of encouragement for the employees, new ideas, energy and future leadership ability.     Professional expertise: The company already has paid for at least five outside advisors (the banker, consultant, accountant, attorney and insurance broker) to go up the learning curve on the intricacies of its business.  If CEO's would use these professionals judiciously, rather than try to keep them at bay, they could significantly improve the returns on these often-overlooked assets. After working on the company's investments, business plans, financial projections, acquisitions, divestitures, real estate, financial statements, tax returns, audits, employee disputes, benefit plans, collections, etc., these professionals are a tremendous storehouse of knowledge and ideas about potential business improvements.  Paradoxically, CEO's sometimes try not to involve these people in their business in an effort to reduce cost.   This is the equivalent of buying a large, expensive and flexible piece of equipment for one application and then purposely trying to never use it again.    Knowledge of the competition:  Salesmen, engineers and others in the company have a substantial body of knowledge about competitors' product features, pricing and upcoming new developments.  They also  have many contacts outside the company through which they could get highly valuable additional information.  If this intelligence would be sought out and communicated across departmental boundaries, management would be much better informed and investments would generate much greater returns. Customer and vendor relationships:  CEO's frequently miss opportunities to gain assistance from two of their most important stakeholder groups, their customers and vendors.  This is because CEO's jump to the conclusion that customers and vendors will abandon them in a heartbeat at the first hint of trouble.  The reality is that this is not the case--customers and vendors also have developed a strong reliance on you because you are one of their stakeholders.  Vendors know that many other customers, particularly in this economy, also are having great difficulty and they know that it would be hard for them to improve on their position with you.  They also may have tailored their company to meet your needs and it might take a long time before they can replace you and collect from their new customers.  Your customers also have come to rely on you and trust your processes and quality. Their personnel may have built strong relationships with your employees and they may not want to change.  Momentum is on your side with both your customers and vendors.  They probably want to help you.  For example, they can slow their collections of receivables from your company and can speed up payments of payables to your company, etc.  This additional credit may not be available to you anywhere else.  But, you must communicate with your customers and vendors properly and build their confidence and trust.  If they think that you are taking advantage of them they will run away as fast as they can.    Buildings and equipment:  Buildings and equipment often are much larger and more sophisticated than needed because they were sized based on needs before the economic downturn.  They are likely to remain more than needed for years.  This represents sorely needed cash that is trapped in these assets.  Due to the difficulty of finding a buyer during the economic downturn, you should begin the sale process for these assets as soon as possible.  If you ever have the customer demand to need these assets again in the future, they can be repurchased.  In addition, just putting these assets up for sale is a very important tangible indicator to all of your stakeholders that you are serious about implementing improvements to your business now.  This helps to build your credibility and stakeholders will be more inclined to trust your judgment on many other matters.

Virtually everyone agrees that the economic conditions will get worse before they get better.  There is no time to waste to make your company stronger.  Take action before conditions get worse, cash is diminished and even fewer options are available. 

Competitive Advantages and the
Fred Leeb & Associates Value Proposition

• Bringing innovative solutions to the table from extensive experience in over a dozen successful multi-billion dollar companies and almost 15 years of helping small and medium-sized businesses in over 50 different industries throughout the US.
• Teaming with the client's management, key personnel and other professionals to refine the solutions into practical strategies that are feasible for the client. 
• Lending immediate credibility to the client's business plan; leveraging excellent business relationships and a track record of success as a consultant and interim CEO. 
• Providing the value proposition--enabling the client's personnel to become the solution themselves as quickly as possible rather than bringing in an army of consultants to stay at the client's location doing everything as long as possible.  Supplying only what the client can not provide so as to maximize our added value, a necessity for small and medium-sized businesses.
• Consulting experience and techniques from working in AlixPartners and PriceWaterhouseCoopers, two of the most preeminent consulting firms in the world.
• MBA from Wharton, membership in the Turnaround Management Association, numerous articles and presentations to professional organizations.

Call Fred Leeb & Associates, the value proposition since 1994, to help build your company's strength and cash flow.

Council of Michigan Foundations :

Council of Michigan Foundations :

Presentation Topic: The Changing World of Philanthropy

For many Michigan nonprofits a perfect storm has hit and survival is the key question. How can foundations help grantees survive these difficult times and continue to serve the community?
Join us for a presentation to address these questions:

1. Why is it urgently necessary to take action now rather than waiting for more clarity?
2. What can nonprofits do right now with little additional cost (e.g., develop realistic cash flow projections to determine when/if they will hit the wall, etc.)?
3. What can foundations do right now to help nonprofits turnaround (e.g., consider establishing an emergency fund, provide a forum for grantees to share best practices, provide letters of credit, etc.)?
   

The Vacation is Over

By Fred Leeb

Urgent to Take Action Now It is now almost certain that Michigan will continue to experience a very harsh economic climate, possibly a depression, for many months if not years.  If no actions are taken now, there will be many fewer options and resources available in six months than are available today. Without decisive action, a downward spiral could develop that is almost irreversible once cash is drained from the organization and management has lost credibility from inaction and broken promises.  Also, the best employees will leave the organization because they do not want to be associated with a failure.  There is no time to waste.   Time is needed to: Analyze the issues and develop a new plan of action as well as a contingency plan. Cut out all low-performing businesses and dead wood. Generate net benefits from reducing expenses.  For example, severance and vacation payments could more than offset initial payroll savings; time is required to renegotiate contracts. Communicate with and enlist the support of all other stakeholders (e.g., vendors, customers, banks, employees, etc.) to build the credibility of the organization, and explain the viability of the turnaround plan.  Obtain concessions and assistance. Raise cash from asset sales because transactions will be slow due to the current illiquid markets (but there will not be enough time to wait for higher prices). Put new managers and professionals in place, if necessary, to refocus resources and implement changes.

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.

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...."

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.”

Press Release

$8 Million Financing Completed for High-growth Manufacturing Company

The Woodward Company, Fred Leeb & Associates and The Acumen Group Team Up to Provide $8 Million in Debt and Equity to Finance the Rapid Growth of a Medical Equipment Manufacturer    July 15, 2008, Detroit, MI-- An $8 million financing has been completed to help a successful manufacturing company.  The company had significant opportunities for growth but previously was unable to attain the needed traditional financing because of their already leveraged balance sheet.   Teamwork among our partners allowed us to quickly assess the situation, develop alternatives and refinance the existing debt.  We also were able to provide a major cash infusion that allowed the company to acquire new product lines, patents and inventory along with funding the marketing programs that are now bringing both distributors and customers to the company's door.   The Woodward Company (contact Dan Smale DTSmale@TheWoodwardCo.com or call 313-850-7500) specializes in mergers, acquisitions and private equity placement.  The Company's Private Equity Source database is a proprietary tool that is used to match client needs with over 1,400 private equity funds around the country.  This searchable database includes their strategies, investment criteria, dollar ranges, funding stage and industry specialization.     Fred Leeb & Associates (contact Fred Leeb at FredLeeb@FLAALLC.com or 248-683-5295) provides financial and management assistance to companies that need to surmount a chronic/fundamental problem and improve cash flow.  The Company is organized to bring innovative and practical solutions learned from numerous multi-billion dollar successful companies as well as many small and medium-sized local businesses in a wide range of industries.