The Changing Economics of Employment

This year will be remembered as the year the economics of employment changed greatly; and the following year will be the year the impact of these changes will be absorbed by businesses.  New regulations cover areas such as minimum wage, employment practices, overtime, background checks, and employee classification, i.e. independent contractor vs. employee.

With any regulation change there are three separate cost levels – cost of review – every entity assumes the cost of reviewing the requirements to understand if they apply to their situation; cost of planning – If the regulation applies, costs include developing an approach to implement, communicating the approach, and if required, training; and finally, cost of implementation – the actual financial impact of the change, which varies based on your organization.  New regulations are expensive.

To add to the complexity, labor laws are predominantly established at the state level.  If your entity transacts business in three states, three sets of rules will need to be considered.

For most organizations, employment costs are the greatest component of total expenses.  Unlike other inputs in the production process – salaries increase annually, but never decrease; when prices rise you cannot quickly reduce use of the resource or purchase the resource from an alternate provider; you pay for the resource, even if you do not fully utilize it; and unlike other inputs, emotion can play a part, i.e.  morale can be a great motivator or great hindrance to the entity.

Focusing specifically on the minimum wage.  A great number of states have increased the minimum wage, but not just for this year.  Several states have a schedule of increases, over time.  To put numbers around it, a $1 increase per hour equates to approximately $2,000 per year in increased employment costs per employee, i.e. $1 * (35 hours * 52 weeks) = $1,820.  The balance will come from employer paid taxes.  For a business that is people intensive, the added costs can be great.

“…the company’s program to raise hourly wages accounted for 75% of the lowered earnings target. He said the company expected to spend an additional $1.2 billion on wages this fiscal year and another $1.5 billion in fiscal 2017.”  (Wall Street Journal, 10.14.2015, Wal-Mart Lowers Sales, Earnings Outlook)

In the long-run, these additional employee expenses should benefit the entity through increased productivity.  A well-paid and well-trained employee works more efficiently, stays on the job longer, and provides better customer service, i.e. is more productive.  At the company level, when productivity improves, fewer resources are being used to produce the output.  Fewer resources equates to lower production costs, which translates to excess funds in the form of profits, for reinvestment into the business or distribution to investors.

However, in the short-run costs will be incurred prior to experiencing the benefits.

So when you raise wage, where does the money come from?  Options to pay the increased wage to your employees are as follows –

  1. Increase the price of your product/service and maintain your profit margin – if your industry is highly competitive, clients may not wish to pay the increased price and leave you to go to a cheaper alternative;
  2. Reduce the reward to investors, partners, owners through reduced dividends; or,
  3. Decrease the average annual raise to higher paid employees – this approach may work in the short-run, but until you can correct the issue, every employee that did not receive a fair increase that is representative of their contribution is a flight risk.

More than likely the increased expense will be absorbed through a combination of the strategies.

Now may be the time to examine your staffing to ensure that it is at the proper level –

Do you have more staff than you need to achieve your business goals?  More importantly, are you receiving the value from these employees that match or exceed the compensation you pay?   Do you still need the contract, temporary or part-time employees (if applicable)?

When costs increase, we are forced to address issues that may have been overlooked previously.

Finally, if your entity does not have any employees that are paid minimum wage, you may not be directly impacted by this change.  However, you will be impacted indirectly.  If your vendor’s costs increase due to these changes, they will attempt to pass the additional expense to your entity.

As such, once you complete your employee review, you may wish to also review your vendor spend.

Editor’s Note: Regis Quirin is a financial executive and author with 23 years of corporate experience.  In addition to writing articles for a few publications, in 2014, Regis published the book “Redesign to Turnaround Underperforming Small and Medium-Sized Businesses.”

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Growth through Mergers and Acquisitions

Companies seek growth through mergers and acquisitions to satisfy one or more of the following – adding a related product or service; expanding geographic reach; purchasing assets, i.e. real estate, patent, brand; and/or, acquiring clients.  There is also the promise of cost reductions through consolidation of back-office and front-office services.  The justification for two companies coming together to either expand or further strengthen a competitive position is logical and easy to support from a financial perspective.  More than likely if an increase in shareholder value can be demonstrated, based on a proforma, the entities will proceed.

Very soon after a decision to merge or acquire is made, a press release is issued which identifies the combination benefits.  “We look forward to working with Cerberus to maintain and grow GMAC’s traditional strong performance and contribution to the GM family,” said GM Chairman and Chief Executive Officer Rick Wagoner.  “This agreement is another important milestone in the turnaround of General Motors. It creates a stronger GMAC while preserving the mutually beneficial relationship between GM and GMAC. At the same time, it provides significant liquidity to support our North American turnaround plan, finance future GM growth initiatives, strengthen our balance sheet and fund other corporate priorities.” (Ally Financial Inc.  Press Release: 2006)

But regardless of how good the merger or acquisition looks on paper, there is a large body of research that shows that mergers and acquisitions add no value, for a majority of the transactions.  In my career I have been exposed to seven entity combinations.  In two instances, the entity I was associated with was acquired; in three situations we were the acquirer; in one situation my entity assumed a majority interest in another entity; and finally one situation where a majority interest was taken in the entity where I was associated (quote above).

The successful execution of this type of growth initiative rests on the details of how the process is managed.  If you choose to acquire or agree to be acquired, consider the following three topics –

Business Integration

Systems – Integration of systems must be addressed upfront to ensure clients of each heritage entity can communicate with the new entity, in a seamless fashion, securely.  This initiative is extremely important during this period where cybercrime and hacking are ubiquitous.  Allowing systems from legacy companies to communicate via workarounds is not a secure approach.

Policy & Procedures – While these guidelines may have common features from company to company, they are custom to each organization.  More than likely your P&P does not match the P&P of the entity that you are acquiring.  You will find that one set is more restrictive than the other.  The question you will have to deal with – “Which policies should be the policies of the new organization?”

Costs – A primary reason to merge or acquire is the perception that cost efficiency can be obtained either from economies of scale, usage of excess capacity, co-location, supplier discounts…

The integration topic has a direct link to time, i.e. how fast you can integrate to secure systems, ensure consistent policies and procedures and cut costs.  Moving too quickly can cause needless disruption to the business; while moving too slowly just delays the benefit of the acquisition.

Employees

Attrition – The combination of two entities immediately creates redundancy.  Employee loss will be high. Some of this loss will be welcomed, but other will not.  You may find that you prefer Manager #1 over Manager #2, but Manager #1 resigns.  Regardless of the amount of analysis and preparation, management has the least control over the individual preferences and decisions of employees.  This point is apparent when you consider the following citation – “Yahoo has naturally lost some of its acquired talent. At least 16, or roughly one-fifth, of the more than 70 startup founders and startup CEOs who joined Yahoo through an acquisition during Ms. Mayer’s tenure have left the company.”  “Yahoo’s Other Challenge: Retaining Acquired Talent.”  Wall Street Journal Online.  Wall Street Journal, 1 May 2015.

Reporting – In my first merger experience, my company was acquired by a company of equal size but stronger economically. A colleague at the time explained to me that when two companies come together, the acquiring company assumes the management responsibility of all roles.  In essence, I would fall under that manager and be performing the role of the person that reported to me.  Every individual in the company that was acquired must be ready to do the job of their direct report.  This explanation was true for all combinations.  At times I had the higher role, as I was with the acquiring entity; while in other situations the reverse was true.

Clients

Attrition – Client loss will be high, more commonly from those clients that were associated with the brand that no longer exists.  This set of clients, do not feel they have any relationship with the new entity.  Consider short-term pricing discounts to persuade clients to consider keeping their business with the new entity.

Sales Management – If you sell a product or service in a geography and you acquire an entity in the same market, you will need to wrestle with the question of who owns the customer, i.e. territory management.  This situation occurs commonly when clients represent national accounts.

Sales Compensation – Similar to Policies and Procedures – While these compensation structures may have common features from company to company, they are custom to each organization.  More than likely your compensation plan does not match the compensation plan of the entity that you are acquiring.  You will find that one set is richer than the other.  The question you will have to deal with – “Which compensation structure should be the structure of the new organization?”

In summary, when an entity wishes to add a product or service or expand geographic reach or purchase assets or purchase clients, the acquisitions approach is considered preferable by many, as it is faster.   Just remember that the economics of the new entity will not be the economics of the addition of each heritage company.  A merger or acquisition takes careful planning to be effective.  There will be upfront costs required for integration and client incentives.  It will require flawless execution to come anywhere close to the proforma goals established at the outset.  There are too many unknowns, internally and externally, to be positive of the outcome.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Growing through Productivity Increases

Productivity is an economic concept that is discussed in the press quite often.  Growing through productivity increases occurs when the quantity of inputs declines, to produce a measure of output.  The sub-set that is referred to is labor productivity, i.e. the amount of labor required to produce a measure of output.  The importance of the statistic is based on its relationship to growth.  If productivity increases, so does economic growth, to some extent.

When an individual states that they are going to become more productive, it usually relates to a desire to increase their organizational habits and improve their time management.  Essentially they are looking to increase their efficiency (inputs), to do a better job (output).  The result is a benefit associated with time saved.

At the company level, when productivity improves, fewer resources are being used to produce the output.  Fewer resources equates to lower production costs, which translates to excess funds in the form of profits, for reinvestment into the business or distribution to investors.  Following are strategies companies employ to increase productivity.

Automation – For a manufacturer this relates to purchasing a machine to make better widgets faster.  However for a service this improvement relates to the efficient storage of information that can be shared and accessed by any department in the organization.  This information will be used for order fulfillment or reporting.  This approach can be costly and time consuming.  If you wish to utilize this strategy, please review “Tips to Mitigate Technology Implementation Challenges.”

Process Improvement – Most processes work best when there is consistency.  Variations in activities and manual processes create a higher probability of error and expose the organization to unnecessary risks and time wasting.  The task of mapping out processes and documenting policies and procedures makes you critically look at the process and identify how things may be accomplished more efficiently, i.e. understand bottlenecks, remove inefficiencies, remove bureaucracy.  If you wish to utilize this strategy, please review “Process Improvement to Eliminate/Contain Non-Value Added Costs in the Services Industry.”

Business Management – As the business grows, so does the complexity of the business. More decisions require more analysis. There are increasing fixed and variable cost considerations and cash flow becomes more important to understand and manage.  Success begins with Strategy and Planning; and subsequently ongoing measuring and reporting.  When Accounting Management, Financial Management; and Risk Management are all optimized and running efficiently; business development can be performed without reservation.  If you wish to utilize this strategy, please review “The Frequency of Best Practices with Small and Medium-Sized Businesses.

The previously mentioned strategies of Automation, Process Improvement and Business Management have historically been the drivers of productivity increases.  But I predict that in the next five years, two additional strategies will emerge as drivers of productivity increases.

Labor Support and Development – High labor turnover is wasteful to any business.  Filling an open position is costly – posting a job; interviewing candidates; hiring an individual; and training the individual.  Once you obtain the right employee, a business should do as much as possible to keep the employee.  A business should invest in an employee, as long as the value received from the employee exceeds the investment by the company in that employee.  Some ways organizations invest in their employees include – providing financial support for job related training; considering non-standard work arrangements; ensuring compensation is at the market rate; and supporting retirement and health care benefits.  From the time the Great Recession began in December 2007, until it officially ended in June 2009, employees continually lost benefits including training and retirement benefits.  Companies that return to pre-recession benefits will experience a jump in morale, sooner than competitors.    For an example of how to utilize this strategy, please review “The Value Embedded in Tele-Commuting.”

A recent example of the support to labor includes – “Blackstone Group LP said Wednesday that it is extending its maternity leave benefits from 12 weeks at full pay to 16 weeks. The move, announced in a memo to employees, is designed in part to help the company compete for talented Wall Street women.”  Lauren Weber and Ryan Dezember.  “Why Blackstone Is Giving New Moms More Time Off” Wall Street Journal Online.  The Wall Street Journal, 22 April 2015.

Data Management – The ability to read data, i.e. Big Data, to understand how to best allocate company resources efficiently, should be a large driver of productivity in the future.  The firm combines price, product, place and promotion in the hope of finding the appropriate relationship to appeal to the target market.  The degree at which these variables are manipulated is based on available data, i.e. geographic assumptions and customer qualities within the geography.   As reported in Game changers: Five opportunities for US growth and renewal a McKinsey Global Institute study (July 2013), “Amazon has taken cross-selling to a new level with sophisticated predictive algorithms that prompt customers with recommendations for related products, services, bundled promotions, and even dynamic pricing; its recommendation engine reportedly drives 30 percent of sales.  But most retailers are still in the earliest stages of implementing these technologies and have achieved best-in-class performance only in narrow functions, such as merchandising or promotions.” (page 75)

In conclusion, firms focused on improving productivity should consider implementing Automation, Process Improvement and Business Management enhancements, as these are proven strategies; as well as additionally incorporating newer opportunities in the areas of Labor Support and Development and Data Management techniques.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Business Disruption Survival Techniques

Establishing a twelve month budget/business planand a business continuity plan are still the best ways to prepare a business for the most probable known threats. But what can you do for unanticipated shocks that negatively affect your ability to achieve your profit goals? When companies are faced with unanticipated situations, that threaten their business, and they realize these disruptions are not short-term issues, they may need to employ “business disruption survival techniques.”

Examples of situations that few saw coming include – The sudden drop in the per barrel price of oil, i.e. NYMEX closing price $99.75 (6/30/2014) vs. $52.78 (02/13/2015), negatively impacting oil and gas companies, and the businesses that support them. Union disagreements and work stoppages at US ports along the West Coast, negatively impacting the inventory of many businesses that sell imported goods. This situation is believed to be resolved, after nine months. The climb in the value of the dollar against most currencies, resulting in exports becoming more expensive, while imports become cheaper.

In reacting to these shocks, businesses implement three main types of cuts, for the sake of temporary relief, i.e. expense personnel, expense non-personnel and investments. If not done correctly, these approaches may do more long-term harm, than good. Activities are as follows –

Slash budgets (Personnel Expenses) – As personnel expenses are the largest cost associated with every business, targeting this expense is usually the first move. This tactic includes implementing hiring freezes and job eliminations.

Additional approaches include salary freezes; bonus reductions; and reducing or eliminating the company investment in the employee, i.e. usually related to education subsidies. More often than not these approaches will leave you with a large exodus from among the high performing dis-satisfied employees that can move to your competitors.

A popular technique which I believe is a big mistake is to provide a stay bonus to a select few. The message relayed with this last strategy, “If you did not receive a bonus, you are not considered critical to the organization.”

Slash budgets (Non-Personnel Expenses) – In the short-run, fixed expenses cannot be slashed, i.e. rent, insurance… The target of this tactic is usually variable expenses, i.e. marketing. But during this time of a disruption, marketing is very important to bring in new sources of revenues.

Delay Investments (Revenues) – To preserve cash during tough times, companies may place a hold on investments until the difficulties pass. But why would you wish to delay the opportunity for revenues, associated with a new product or service?

To avoid the slash and burn mentality, establish an environment of constant review and analysis. Do not wait until you are forced to make a large correction. Make small adjustments to your business, continually along the way. Suggested areas to monitor include –

Review Client Arrangements – Obtaining a customer that becomes unprofitable is a common situation. It only becomes an error of management if you do not constantly review the situation to understand the returns.

Review Products or Services – Periodically every business should review its product lines and services, to understand the profitability generated. The natural result will be an emphasis on the most profitable activities; while de-emphasizing the less profitable or money loosing activities.

Review Accounts Receivables – If you extend credit to your customers, which is required for almost all businesses, a certain amount of bad debt will result. At a certain point, you will need to ask for what you are owed. Resolving this bad debt efficiently and quickly, while not disrupting the possibility of future business from the customer takes tact and experience.

Understand Variable Expenses – Review your needs – Contracts represent your needs at a point in time, i.e. when they were executed. It makes sense that a contract will include items you no longer need – understand needs; understand pricing alternatives; seek opportunities to bundle; and avoid the warranty trap with new technology.

Consider Business Management Practices – The solution to counter an underperforming small or medium-sized business is a redesign. Interestingly, the method to redesign a business is the implementation of standard business management “best practices.”

Continue to Review Investment Opportunities – A company should only allocate cash to the most profitable uses, with the highest return on investment, which will provide potential distributable benefits to its investors, within the shortest amount of time.

Survival will be based on your ability to shift quickly, but strategically.

You can never plan for external disruptions, but you can prepare. Do the analysis today.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Who Owns the Customer, i.e. the Company or the Sales Agent?

This question was less important when the job market was in decline.  But as the economy recovers, business owners and senior managers will be faced with this question, more and more.

Depending on who you ask, there are two popular, but contradicting opinions.  If you ask the owner/CEO of the entity – “The customer belongs to the company.  They come to us because of our quality products/services.  The Sales Agent has been properly compensated for procuring the customer on our behalf.”

However, If you ask the Sales Agent – “The customer belongs to me.  They were sourced by my efforts and we have a relationship.  They transact business with the entity because of me.”

In fact, it is not uncommon for a Sales Agent to maintain a separate and personal file of their interaction with the client/customer.  When they leave your entity and seek employment from your competitor, they may say, “I produced $XXX in revenues for my last company, and I can do the same for you.  I maintain a book of business that will more than likely follow me, if I move to your company.”

There is a legal answer to this question, which I was reminded of, when I left an entity after fourteen years, even though not in a Sales capacity.  Not more than 30 days after my departure from one entity to a competitor, I received a letter from the President of my former employer.  Excerpts of the note are as follows -“In view of your departure from XYZ, this letter is to remind you of your obligations to XYZ, and under the law, both during and after your employment with XYZ…it is your obligation to handle XYZ trade secrets, confidential or proprietary information to which you had access during your employment at XYZ, whether in your memory or in writing, or in any other form, with the strictest confidence and in a manner consistent with XYZ’s policy, both during and subsequent to your employment…you may not misappropriate or use for the benefit of anyone other than XYZ any confidential or proprietary information relating to XYZ’s business.”

So what can you do?

As a first step, make sure your compensation agreements and employee agreements include language that clearly states the client belongs to the company and the legal obligation of the employee.  This agreement should be reviewed and approved by a qualified Labor Attorney.

But even after this measure, you may find that the client leaves you and follows the Sales Agent.  This situation may occur not because of what the Sales Agent did, but more because of what you did not do.  The companies that lock in the client and foster brand loyalty have developed a communication link with the client.  If you do not reach out and establish this link to your brand, the only connection the client has to the company is the Sales Agent.  More than likely, if the Sales Agent leaves, so will the client.

Popular approaches companies use to reach out to the client and maintain contact include offering post purchase support or discounts on future purchases or advertising related products/services.

At every possible opportunity your entity should advertise the brand and state the value proposition.   Regardless of the product/service, every business runs the risk that what they offer becomes a commodity in clients’ minds, i.e. belief that every competitor offers identical product/service.  If all products/services are the same, why not just work with the individual Sales Agent, wherever they go?

But your value proposition is your differentiator.  Customers/clients will seek you out and be less sensitive to price if they understand the benefit of working with you vs. other vendors.  How do you differentiate yourself from the pack?

It is a valuable exercise to identify and document what makes you different.  The results of this activity should become the basis of all marketing materials, i.e. your value proposition.

An example of a value proposition that I have used includes the following commitments.  XYZ Entity –

  • Offers superior product or service;
  • Makes an effort to understand your specific needs and has many ways of doing things so you can find the one that meets your needs;
  • Takes responsibility to get things done;
  • Is knowledgeable about the product/service you seek;
  • Tells you what you need to know in the way you understand;
  • Offers a complete array of the product/service you seek, to make your life easier.

The only way to maintain a client is to develop a relationship between the client and the company, through consistent messaging that differentiates yourself from the pack of competitors.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Emotions in Business – Yes or No?

Probably one of the most important concepts in any business is to control emotions.  It is emotion that is critical in creative thinking and self-motivation.  However, un-controlled emotions are a liability.  Nothing destroys economics more than emotions.  I learned this concept in college, but have seen it played out with many companies I have managed as their financial support, time-and-time again.

It is understood that emotions cloud decision making.  For example, a practice within real estate sales is to make the buyer “fall in love with the property.”  Help the buyer visualize themselves in the home.  I have heard of real estate agents baking cookies so home visitors feel welcomed, during open houses.

In the end, if you bid on the property, it is advisable to know the maximum price you are willing to pay for it, and know when to walk away from the deal.  If you get wrapped up in the moment, you risk bidding beyond your means.

Clearly with respect to personal situations, we try to control emotions.  But when the question turns to emotions in business, there are two very different points of view –

In business you should be emotionless.  Inherent in business are successes and disappointments.  If things do not go your way, an objective solution is preferable to a subjective reaction.

If you find your company in a situation where profits are eroding, emotions should play a lesser role.  The best approach is to assess the situation, think of the options to solve the problem and chose the solution with the highest return and least probability of failure.  This approach is essentially mathematical.

The absence of emotions also can help when implementing fixes to your current business model.  You will be required to look at a business, and identify waste and inefficient processes.  At times the solution will have a negative impact on current employees either through their termination or a change to their job.  Having an emotional attachment will make it difficult to deliver bad news to the employee.

Counter point – Controlled emotions are not just acceptable but required to be successful.  If you are responsible to develop relationships and build trust, being devoid of emotions is not conducive to this goal.

Internally you will be required to build partnerships and motivate individuals within the organization, for the good of the company.  Employee involvement is important to the success of this endeavor.  Externally you must reach out to current customers and prospective clientele, to build relationships, for future business opportunities.

A turnaround requires more than just a great plan.  A turnaround requires flawless execution.  Emotions are useful to create trust, drive passion and helpful to motivate staff.

So what is the correct mix?  There are many tests that measure an individual’s approach in life.   IQ (intelligence quotient) measures an individual’s capacity to learn reason and apply that knowledge.  EQ (emotional quotient) measures an individual’s ability to read a situation, and apply intuition.  A high IQ, combined with a high EQ would seem to be the recipe for a highly successful individual in business.

There is a theory that building a team is made easier if you know the IQ vs. EQ mix represented by each team member.  In this way teams could be assembled with individuals that complement each other’s natural abilities.

But regardless of how you decide to proceed on the issue of emotions, keep in mind that the top reasons for employee law suits against businesses fall into the following categories – discrimination (sex, race, disability and national origin), harassment, retaliation against a whistleblower and wrongful termination.  In every situation, emotions play a role in these claims, as the employee feels they were wronged.  Valid claims or not, litigation is painful, expensive, and should be avoided.  Emotions throughout the organization should be controlled.

What are your thoughts?

This passage is an excerpt from my book, written in 2014 — “Redesign to Turnaround Underperforming Small and Medium-Sized Businesses” available via Amazon.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

2014 Concerns to the CFO

The concern of all senior finance professionals in 2014 will continue to be the proper management of cash flow in an environment of shrinking margins and soft demand.  To foster revenues, companies will need to improve responsiveness and meet customer expectations through innovation.   Productivity advancements will come from the implementation of new technology.  To contain costs, the focus will include overall spending; technology spending; and the efficient use of marketing.   All of these actions are internal in nature, i.e. the CFO will be able to exert some amount of control.

However there are three very specific issues in 2014, which will consume the thoughts of CFO’s as they potentially have a direct impact on the cost structure of the business model.  All of these activities are external in nature.  The CFO will have little control, but will be responsible for integrating change within the organization.

Data Security – Gregg Steinhafel Chairman, President and CEO, Target announced on December 19, 2013 – “We wanted to make you aware of unauthorized access to Target payment card data. The unauthorized access may impact guests who made credit or debit card purchases in our U.S. stores from Nov. 27 to Dec. 15, 2013.”  As a result of the breach, up to 40 million credit- and debit-card accounts may be compromised.  The true impact of the theft to consumers will not be known for some time; but the impact to Target will be immediate and may include a loss of confidence by its consumers with a corresponding decline in business.  It will be important to watch this situation unfold to understand what Target does correctly vs. what Target does incorrectly.  What regulatory actions will evolve out of this issue?

Tax – On January 1, 2014, the IRS’s new requirements regarding when taxpayers capitalize vs. expense for acquiring, maintaining, repairing and replacing tangible property becomes effective (T.D. 9636).  The exact impact to your organization is based on your business model.  The regulation is complex and should be reviewed early on to maximize the benefit to your organization.

With respect to state tax, twenty-three states have either expanded or proposed sales tax nexus expansion laws, i.e. click-through nexus for internet sales.  A firm without physical presence within a state, but sells goods and services, may be required to pay sales tax to the state.  This trend is expected to continue to evolve.  Check with the tax body in the states where you operate to understand if you will be newly impacted.

Compensation – Various unrelated actions are occurring in the compensation space, which will result in this area as a main focal point in 2014 –

  • CEO Compensation Ratio – On October 1, 2013, the SEC Pay Ratio Disclosure proposal was published in the Federal Register for a 60 day comment period.  “As required by the Dodd-Frank Act, the proposal would amend existing executive compensation disclosure rules to require companies to disclose: the median of the annual total compensation of all its employees except the CEO; the annual total compensation of its CEO; and the ratio of the two amounts.  [SEC Proposes Rules for Pay Ratio Disclosure, Press Release 2013-186] From October 1 through December 2nd – 493 comments were received.  Expect the SEC to publish its analysis during 1Q2014 with a final rule published soon after.
  •  Minimum Wage Changes – Thirteen states will have minimum wage increases effective January 1, 2014 – Arizona;  Colorado; Connecticut; Florida; Missouri; Montana; New Jersey; New York; Ohio; Oregon; Rhode Island; Vermont; and Washington.  The smallest increase is $0.10/hour; with the largest increase $1.00/hour.
  • Cost of Healthcare Benefits – The cost of health insurance is evolving and should be closely watched.

The success of your business is directly related to your ability to execute on your plans, i.e. internal factors where you have some control.  However, it is important to understand external actions that may impact your business in the future, to allow for their future integration, if required.

What issues are of concern to you?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

What Will Be Your Healthcare Strategy for 2014?

Originally signed in 2010, the Patient Protection and Affordable Care Act (Act) is composed of two separate legislations (HR3590 and HR4827).  Together they make up “Obamacare.”  Provisions began to take effect in 2011 and will continue to be phased-in through 2018.  But in 2014, some primary provisions of the Act will become fully in-force.  Make no mistake.  The law is as complicated as the Tax Code.

To compound the issue, on March 22, 2013, The Wall Street Journal reported medical premium increases are expected in 2014 – UnitedHealth Group projects +25% to +50% for small businesses vs. Aetna Inc. projects +29% for small businesses (“Health Insurers Warn on Premiums”).

In 2014 there will be approximately twelve phase-ins, most of which will be handled by the insurance industry and states.  Businesses need to be aware of the following four provisions – Small Business Tax Credit; Automatic Enrollment; Premium Variation for Participation in Employer Sponsored Wellness Programs; and, Reporting on Minimal Essential Coverage, relating to the Employer Mandate.

The “Employer Mandate” – if an employer has 50 or more full-time “common law” employees, they may be required to offer health insurance coverage to all employees.

Full-time is defined as working 30 or more hours per week, on average.   While a common law employee is defined by the IRS as, “Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.”  Individuals that are not employees include leased employees; a sole proprietor, a partner in a partnership or a 2% S-Corp shareholder.

The penalty for non-compliance may be as much as $2,000 per full-time employee, for every full-time employee over a 30-employee threshold.

So understanding medical costs are increasing and you may be required to offer health insurance coverage or pay a penalty, what will be your healthcare strategy?

Following are some options for your consideration –

-Do nothing.  Assume based on the economy Congress will either delay or amend the legislation.

-Reduce the number of full-time employees and replace them with part-time and seasonal employees – the Act anticipated this reaction and has a formula that will calculate “full-time employee equivalents” to identify businesses subject to the Employer Mandate.

Full Time Equivalents = (Total # of monthly PT Employee Hours/120)

-Outsource employees/lease –This option should be considered very seriously.  PEO companies are great at addressing all tax, payroll and reporting processes.  For more information, please review the following blog post – “A PEO is not a “Set it and Forget it Process” located  http://cfotips.com/?p=97;

-Pay Penalty – Of course if after a cost benefit analysis you discover that it is cheaper to pay the penalty, that may be an option.  Do not forget to consider within your calculations the tax implications of this option, i.e. health insurance expenses are deductible vs. penalties which are not;

-Cap company contribution and allow employees to choose coverage through an on-line marketplace.  If the employee wishes a richer plan, the employee would be able to pay more each month. This approach was used by Aon Hewitt, Darden Restaurants Inc. and Sears Holding Corp, in 2013.  Details can be found in the Wall Street Journal, March 17, 2013, “To Save, Workers Take on Health-Cost Risk.”

Whatever option you choose, please consider the impact it may have on your recruiting efforts.  For example – choosing to not offer health insurance and pay the penalty may cause a retention issue for your company that is not easily corrected through your standard recruiting efforts.  You will automatically exclude applicants looking for benefits as possible employees.

Studies show, in the long-run costs will be controlled and more individuals will be covered. However at the individual company level and in the short-run confusion is imminent and in business, confusion leads to mistakes which can be costly.  Not addressing this issue and developing a plan is a very large mistake.

Update – On July 9th, a delay in the reporting requirements of the PPACA, required a delay in assessing the employer shared responsibility penalty until January 1, 2015.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Is Tax planning even possible in this environment?

With six months remaining in 2012, a sound recommendation would be to review expiring tax provisions (individual and business) and plan accordingly, to ensure you are prepared.  Are there tax benefits today that you would like to take advantage of before the opportunity passes?

Every year the Joint Committee on Taxation produces a list of expiring tax provisions over the next ten years (https://www.jct.gov/).  The most recent version was published January 6, 2012. According to this document, the number of expiring provisions, by year, is as follows –

List of Expiring Federal Tax Provisions
Joint Committee on Taxation
2011 60
2012 41
2013 8
2014 6
2015 0
2016 5
2017 1
2018 1
2019 0
2020 1

Now consider the proposed 2013 federal budget which extends, enhances and adds new tax provisions.  Some of the business recommendations include: extending first-year depreciation deductions for certain property; granting a temporary income tax credit for job creation and wage increases; offering tax incentives for locating business activity in the US and prohibiting tax deductions for shipping jobs overseas; changing the Research & Experimentation credit; and, increasing the amount of deductible start-up expenditures.

Are there activities that you are considering implementing in 2012 that if you waited until 2013 would allow you to take advantage of proposed tax benefits?

How do you plan if you do not know for sure what will end and what will be enacted? You can expect that during the last four months of 2012, while the US is focused on the Presidential election, Congress will be considering approving a 2013 Federal Budget, which may include extending expiring tax provisions.

As recently as June 6, 2012, Bloomberg reported, “Former President Bill Clinton said Congress may have to temporarily extend all expiring tax cuts and spending into early 2013 to give lawmakers time to reach a deal on deficit reduction.”  While extensions are common, the suggestion of extending “all” seems very aggressive, but plausible.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Patient Protection and Affordable Care Act “ObamaCare” Constitutionality

The Patient Protection and Affordable Care Act was signed into law March 23, 2010, by President Obama.  It is an extensive piece of legislation that will greatly alter the economics of healthcare.  The law impacts the four major industry constituents – providers of healthcare, providers of healthcare insurance, employers offering healthcare benefits and users of healthcare.

In March 2012, the Congressional Budget Office and the Joint Commission on Taxation estimated that the insurance coverage provision will have a net cost of about $1.1 trillion for the 2012 – 2021 period.  Excluding unauthorized immigrants, the insured share of the nonelderly population is projected to increase from 82% in 2012 to 93% in 2021.

Specifically for businesses, by 2014 – “Employers with more than 200 employees must automatically enroll new full-time employees in coverage.  Any employer with more than 50 full-time employees that does not offer coverage and has at least one full-time employee receiving the premium assistance tax credit will make a payment of $750 per full-time employee.”  (Summary Link – http://dpc.senate.gov/healthreformbill/healthbill04.pdf )

But, the future of this legislation is in question, in its current form.  Lawsuits have been brought by 27 states, questioning the constitutionality of some of the provisions of the law.  The Supreme Court of the United States heard three days of oral arguments at the end of May and is now deliberating.  A late June decision is expected.

At the heart of the issue are two elements, i.e. the “individual mandate” provision which requires all citizens to maintain health insurance by 2014 or be assessed a penalty on their tax returns; and the expansion of Medicaid which impacts states, that help fund the program.

So what is the likelihood that the Supreme Court declares aspects of the law unconstitutional?  It is hard to predict.  But if you are wondering how many times the Supreme Court has overturned Congress in the past, according to the General Printing Office database, the Supreme Court has declared acts of Congress unconstitutional 158 times in the past 213 years, from 1789 to 2002.

Please look for an update to this post within the next 30 days.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

H.R. 3606, aka the Jumpstart Our Business Startups (JOBS) Act, is Law

The U.S. Senate granted approval March 22nd; while the House of Representatives approved March 27th.  The Act was signed into law by the President on April 5th.  This law creates a category of companies called “emerging growth companies” that stay under the radar of the Securities and Exchange Commission (SEC), for up to five years.  This class of companies includes entities with gross revenues of less than $1 billion in the most recent fiscal year.  Reportedly, this population includes 14% of companies.

The logic – relax rules that limit the ability of small businesses to garner capital, thereby assisting their growth.  As these businesses thrive, hiring increases.

Benefits afforded to emerging growth companies by this law include –

-Exempt from the requirement of separate shareholder approval of executive compensation;

-Need only to provide audited financial statements for two years, as part of their IPO registration;

-Exempts external auditors from attesting to the assessment of internal controls provided by management;

-Exempt from any firm rotation requirement  being considered by the Public Company Accounting Oversight Board;

-Raises the number of investors to 2,000 and investment value to $50 million, prior to SEC registration;

-Eases certain conflict-of-interest restrictions between the analysis and investment banking sides of a firm with respect to offerings; and,

-Exempt from soliciting investment from only sophisticated investors.  Reportedly, this provision will allow companies to seek funds over the internet, i.e. crowdfunding.

But don’t expect any sudden changes on Monday (4/9).  The SEC has 270 days to review the law and revise current regulations.  Items of this law alter elements of the following laws – Securities Act of 1933; Securities Exchange Act of 1934; Investor Protection and Securities Reform Act of 2010 (title IX of the Dodd-Frank Wall Street Reform and Consumer; Sarbanes-Oxley Act of 2002; Reg D; Rule 144A…

Detractors believe that loosening regulations will only lead to abuse and fraud.  According to the final version, the SEC will report to Congress every two years, tracking the incidence of fraud associated with these changes.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

What is the proper way to roll-out an ethics program?

In my experience – Ethics policies are tucked away within a company’s code of conduct.  Prior to year-end, every employee is required to go and review the policy and click on a little button on the bottom that states, “Accept.” Employees open the training material and go right to the last page and press accept on-line.

According to the 2011 National Business Ethics Survey® (http://www.ethics.org/nbes/files/FinalNBES-web.pdf), the increase in training observed from companies surveyed, has not resulted in a noticeable reduction in abuses.

Select Survey Results
The proliferation of ethics standards and ethics training increased 2000 2003 2005 2007 2009 2011
Written standards for ethical conduct 79% 68% 83% 83% n/a 82%
Training on company standards of ethical workplace conduct 54% 50% 65% 75% n/a 76%
But the impact is questionable
Pressure to compromise their company’s ethical standard is flat 14% 11% 11% 10% 8% 13%
Abusive Behavior declined slightly 24% 22% 20% 21% 22% 21%
Discrimination is flat 16% 14% 12% 13% 14% 15%
Stealing is flat 13% 13% 12% 11% 9% 12%
Falsifying time reports or hours worked declined 20% 22% 16% 17% n/a 12%
Sexual Harassment declined slightly 13% 14% 10% 10% 7% 11%

Clearly there are many factors that can have an impact on the statistics presented.  However, six data points for each criteria, over eleven years is significant.

So if the process of annually checking a box, prevalent in many organizations, does not work, what will be successful?

Raytheon Company (http://www.raytheon.com/responsibility/stewardship/ethics/ethics_over/index.html) claims they have a process that is yielding success.  The program includes the following elements –Offer Ongoing Ethics education – Annual, peer group training sessions where real workplace issues are discussed; periodic e-mails to staff, which review ethics situations; and on-line learning modules for completion are distributed; Advocate ethics activities within the community; Establish an Ethics office, to allow for the reporting of abuses, by employees, i.e. whistle blowers; and, Create metrics and track progress.

What is your experience?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Rules are Changing

The market turmoil of 2008 changed the business landscape dramatically.  In addition to integrating new rules into the business, today’s CFO, must keep up to date on rules still yet to be implemented.

Following are some of the federal rules affecting Human Resources, Finance, Accounting and Financial Management.  This list is in no way exhaustive.  There may be additional rules specific to your industry or at the state/local level that require your attention.

2012 Regulation Table

Note – it is not unusual for implementation dates to be delayed for various reasons.

It is true, currently, that depending on the size of your company, implementation of these rules may be delayed, if even required at all.  But keeping up to date on the latest regulations can only benefit you and your company.

If these rules must be integrated, my suggested implementation approach is as follows –

  • Review the requirements with your General Counsel;
  • Identify the items that will impact your company;
  • Collect data from your industry affinity organization i.e. how are competitors integrating these rules; and,
  • Develop a plan to implement the rules within your company – implementation, monitoring effectiveness, altering policies & procedures…

Caution – new rules have the immediate impact of increasing your expense base either through new processes, requiring additional headcount and/or training staff on the new requirements.

What has worked for your company?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

A PEO is not a “Set it and Forget it Process”

A Professional Employer Organization (PEO) is a co-employment arrangement where a Business hires the PEO as the employer of record. The employees are referred to as leased employees.  For a fee, usually a percent of payroll, the PEO will perform a portion of your Personnel & Payroll activities; while the Business performs others —

Task Business PEO
On-boarding Recruit and process new employees. Provides benefits package.
Compensation Designs plan. No involvement.
Payroll Process payroll instructions bi-weekly, i.e. salary, draws, commissions. Business distributes the Commission statements. Pay wages per Business directions.
Taxes No involvement. Pay and report all employment taxes to state and federal authorities, as required.
Unemploy and W/C claims No involvement. Administers and manages all claims.
Benefits No involvement. Makes benefits available per contract.
Employee Support Respond to day-to-day questions based on Policies and Procedures. Involvement reactionary.
Employee Training Coordinates job training. Coordinates harassment/ discrimination training.
Performance Reviews Administers. No involvement.
Warning Process Administers. Involvement reactionary.
Record Maintenance Maintains employee file. Maintains employee file “of record.”

If you are a small business and do not have the resources to hire a full payroll and human resources staff, the PEO approach should be considered.  This recommendation is further supported when you consider the HR changes that are “on deck” for implementation, i.e. W2 reporting, 401k disclosure, HSA management, health care regulations.  Keeping track of the changes and when they will be implemented may be better handled by a specialist, i.e. the PEO.

If managed correctly, these relationships are fantastic.    Following are a few suggestions for your consideration –

  • Spend extra time ensuring the payroll you submit for payment, to the PEO is correct.  Out of cycle payments are usually expensive.
  • Maintain a complete copy of the employee records.  Do not be in a situation where the vendor has all of the information for your employees and you have none, i.e. giving up total control.
  • Annually, review what you pay for PEO services vs. what it would cost if you maintained in-house support.  Depending on your business, there will be a point where bringing the process in house makes sense.
  • Conduct meetings with the PEO, on a set schedule, to ensure the quick resolution of issues, as they materialize.

My personal experience with PEO’s occurred between 2000 and 2006, where I was responsible for managing payroll activities for 30 joint venture companies, i.e. 250+ employees.

What is your experience?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Employment Status Determines Tax Liability

According to the IRS –

“Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.”

Originally the IRS determined if an individual was an employee or an independent contractor, based on a “Twenty Factor” test.  But in January 2006 the process was simplified.  Factors considered now fall into one of three categories, i.e. behavioral control, financial control, type of relationship.

IRS Test Category Employee (W-2) Independent Contractor (1099)
Behavior Control Location On premises Off premises
Behavior Control Work Time Co determined – standard Contractor determined – non-standard
Behavior Control Staffing Resources Co determined Contractor determined
Behavior Control Direction Provided Direct work process and output Direct work output only
Behavior Control Training Co provided Contractor responsibility
Behavior Control Supplies and Equipment Company provided Contractor provided
Financial Control Business Expenses Generally  Reimbursed Generally Unreimbursed
Financial Control Investment in Process Insignificant Significant
Financial Control Degree of Availability Co is sole customer Multiple Co customers
Financial Control Pay Consistent Not consistent
Financial Control Profit or Loss No p&l outcome p&l outcome
Type of Relationship Contract Describing Relationship What parties call it What parties call it
Type of Relationship Benefits Eligible Yes No
Type of Relationship Degree of Permanence Permanent work Temporary work
Type of Relationship Importance of Services Performed Business critical Non-business critical

If after reviewing the IRS established testing you cannot determine the employment  status, you have the option of completing and filing a form SS-8, requesting an IRS ruling on the status.

As you can see, in some circumstances employees fall clearly in one or the other camp.  However, there can be a very large grey area.

In 2000, the Department of Labor investigated the degree at which mis-classifications occurred.  At that time it was determined that 30% of firms mis-classified employees and independent contractors.

In response, federal and state authorities are beefing up auditing to investigate these situations and levying fines against law breakers.  Please note the federal government’s newly re-introduced H.R. 3178; and California’s newly enacted SB459.

If it is determined that an employee was misclassified, the employing company will be assessed back taxes, penalties, interest, unpaid personal incomes taxes of the misclassified worker, overtime, benefits, leave entitlement, and other rights and protections due to employees.

If your company has any independent contractors, it may make sense to review the arrangements based on the criteria above.

Please let me know your experiences.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Activity Based Costing and Sales Management

Activity Based Costing (ABC) is a process by which you attempt to identify the discrete costs associated with a product, service or process.  Activity Based Management (ABM) is the process of using ABC derived information.  The primary uses for ABC include new product/process development and process improvement.

  •  New Product Development – Prior to implementing any new product or process you want to understand the costs of development and the expected returns.  Anyone that has experienced a major system conversion, understands that the true cost of the conversion is more than just the monthly licensing fee.  Some of the hidden costs include contract negotiations, compliance reviews, project staffing, testing…
  •  Process Improvement –In the ongoing quest to offer quality services at the lowest cost and remove non-value added expenses, ABC is a valuable tool.  Activities include – process mapping and validation, apportioning costs by activity, identifying areas of improvement to maximize revenues and minimize expenses.  This process is extensive and complicated.

The ABC process makes tremendous sense for these aforementioned uses.  However, the greatest drawback of ABC is that it cannot easily be utilized month-to-month, due to the extensive analysis required to allocate expenses.

In every p&l some items are obviously associated to a product or service sold, but others are not.  Items that are not as clear include HR, IT, Legal, Payroll.  For smaller companies these administrative services show up on the p&l and are tracked by themselves, as they are considered the cost of doing business.  But for larger companies, with multiple channels, these costs are a source of frustration, as they show up as a management fee or corporate allocation.  Lumping together and allocating is much easier to administer than an accurate monthly allocation of expenses.

So what can you do monthly?  ABC should be used monthly when reviewing Sales activities.  For each Sales person, the company should track the individual expenses associated with obtaining the sales generated, i.e. revenues less discounts, marketing dollars utilized, commissions paid.  Through this process you will better understand which sales managers are bringing you the most value vs. the sales managers that are not as profitable.  Once identified, these less profitable sales managers can be coached with the intention of bringing their profitability to parity with the rest of the sales force.

What has been your experience?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

The Value Embedded in Tele-Commuting

As communication technology advances and tools become more pervasive, the traditional office blurs, i.e. geography and time zone.  Organizations are more-and-more giving up traditional brick and mortar, in exchange for the online office.  High speed internet is now available in many places.  Business can be conducted at home or at the local coffee establishment.  The term telecommuting includes all remote working and work from home arrangements.

The trend is growing —

“In a recent Accountemps survey, one-third (33 percent) of chief financial officers (CFOs) interviewed said remote work arrangements, such as telecommuting and working from satellite offices, have increased at their companies in the last three years.” (PR Newswire 09.14.2011)

“TechCast, a virtual think tank based at George Washington University, forecasts that 30% of the employees in industrialized nations will telework  2–3 days a week by the year 2019. What’s more, they estimate the market for related products and services at $400 billion a year.”  (TeleworkResearchNetwork.com / Kate Lister / May 2010)

Benefits to these arrangements include –

  • Benefits to Employer – “Half-time home-based work among those with compatible jobs could save employers over $10,000 per employee per year—the result of increased productivity, reduced facility costs, lowered absenteeism, and reduced turnover. The cumulative benefit to U.S. companies would exceed $400 billion a year.”  (TeleworkResearchNetwork.com / Kate Lister / May 2010)
  • Benefits to Employee – “Overall, researchers have found that virtual workers are slightly more satisfied than their in-office counterparts. In general, virtual work leads to higher satisfaction, lower absenteeism and higher retention. Additionally, because the majority of virtual assignments result from the employees’ expressed desire, organizations usually observe little to no decrease in production or performance. On the contrary, productivity often increases (Erskine, 2009; Mulki, Bardhi, Lassk & Nanavaty-Dahl, 2009).”  (Cornell University study Remote Work: An Examination of Current Trends and Emerging Issues Spring 2011)
  • Benefits to Society – Online Office arrangements provide the opportunity for those with disabilities to more efficiently participate in and/or transition into the workforce, i.e. an online arrangement may allow individuals on maternity leave to transition back to the work force more easily.

Benefits to date have been experienced by employers and employees, using a combination of various technology tools.  Top 10 technologies that companies provide to support remote workers include – Laptop 62%, Virtual Private Network (VPN) 40%, Instant Messaging 29%, Outlook Web App (OWA) 28%, On-line Meeting 27%, SmartPhone Mobile Computing 25%, Desktop 21%, Remote Desktop 18%, Collaboration/On-line Workspace 17%, Video Conference 17%. (Microsoft 2010 US Remote Working Research Summary National Survey Findings).

However, as you would expect with changes in business methods, come unforeseen issues, i.e. innovation creates disruption –

  • Issue 1 – Employee Exclusion – “Employees in virtual environments may develop perceptions of exclusion or isolation due to their need to rely on technology to communicate with others; common forms of communication technology (e.g., email) do not provide a high level of information richness and can inhibit social exchange (Marshall, Michaels, & Mulki, 2007).” (Cornell University study Remote Work: An Examination of Current Trends and Emerging Issues Spring 2011)
  • Issue 2 – Remote Responsiveness – “Some remote employees struggle when attempting to coordinate their work with their managers and other employees or when attempting to receive timely feedback.”  (Cornell University study Remote Work: An Examination of Current Trends and Emerging Issues Spring 2011)

More and more companies are figuring out the proper way to reap these benefits, while addressing the issues.

Where is your company in this process?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Communicating and Monitoring Success at Reaching Strategic Goals

Scorecards present Key Performance Indicators (KPI’s) that the company/department deems is appropriate to gauge success at achieving strategic goals.  These reports are metric centric.   As a general rule, KPI’s provide information which gives the reader a quick glance of success from a financial, operational, and risk perspective.  A successful scorecard will assist the company drive profitability, reduce costs and provide insight into risk.

Qualities of the basic scorecard include –

  • Simple, intuitive and easy to read
  • Department/business specific metrics – metrics impacted by team activities.
  • Tolerance ranges displayed and highlighted when breached
  • Nine to twelve key metrics to grade performance
  • Benchmarking to gauge how the company’s performance measures up to its competitors and peers (external data).

How to start – Identify nine important activities the team accomplishes, that contribute to the strategic objectives or compliance obligations of your business.  Build metrics that measure activity success.

Note – data presented rates how the company is faring based on established targets, i.e. based on your annual plan.  This type of report does not do a good job at presenting trend data.

What is your experience?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Should your CFO be a CPA?

It only makes sense for my first blog post to be an issue that is controversial.

The correct answer to the question…not necessarily.

A CFO is a well-rounded management executive, whose primary role is “advisor” to the CEO, regarding strategy and direction of the company. He/she is a finance expert that must interact with internal groups (HR, IT, Accounting, Sales) and represent the company with external groups (banks, investors, reporting agencies, auditors).

I am in no way dismissing the knowledge and experience gained in public accounting, by a CPA. However, a CPA would be a Subject Matter Expert in only one area that requires attention from a CFO.

While the CFO need not be a CPA; he/she must certainly be able to understand the issues and ramifications of decisions. He/she needs a strong understanding of GAAP; and be skilled in financial statements, the general ledger, and the day-to-day technical skills.

Experience is the primary requirement for a company’s top Finance post. A CFO with hands-on experience and exposure to different situations and complex challenges enables them to quickly analyze and assess any situation.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.