You Get What You Pay For!!!!

  I was visiting with a client last week and he told me about this "wonderful deal" he received some on some equipment he purchased for his business!!  I was happy to hear about his good deal-- however, a few days later I saw him again.  This time he was not near as joyous about his new purchases!  Of course, I wanted to know why?  Well, you can guess the answer-- you get what you pay for!

   In this particular case, he bought some equipment for his business.  Although the deals were good initially, the reason they were good was the fact that the equipment was of poor quality and broke down frequently.  What appeared to be a good deal turned out to be a bad deal in the end!  It costs no more to go "First Class" in the beginning and be done with spending money.  Yes, it will cost more initially, however, the life cycle cost is much lower, giving you greater value and return for your money.  You do get what you pay for--remember that the next time that you think about buying something.

Shut 'er down-- We are done!

   A client called me the other day and told me that he had elected to shut down one of his production facilities located approximately 70 miles from his home office.  The facility had been very profitable and successful, however, in the past 18 months, increased competition, newer facilities, a decrease in product demand coupled with an ever increasing challenge for qualified labor caused him concern and sleepless nights.  At the end of a 6 month period, where he increased marketing and worked hard to market the product that the facility produced, he elected to close the facility.
    Now, you may think that this was a rash, emotional, poorly thought out decision.  If only he had "stuck it out" another 6-9 months, the business would turn around and the facility would once again become profitable.  This might very possibly be the case.  HOWEVER, this client had worked diligently on overcoming the downturn and did not see any future.  Hence, his decision to close the facility.
     A banker told me the other day that he had a client that had several facilities located through out a state that were performing below profitable levels.  The banker told me that he told the client that he had until the fall to either show how the poor performing facilities would turn around or what other managerial actions that the client would take so that the bank could continue the relationship with them.
     The key here in both stories is that action is needed if you have a facility that is not making money.  Maybe the market has changed substantially in the past 18 months, labor availability has decreased, parts and supplies have increased in cost.  Whatever the factors are, if the business is no longer profitable, then closing the facility makes good sense.
      We have worked with many clients that "hung on" too long when they probably should have taken action to close the facility/store/plant probably 9-12 months earlier.  Now, they have spent significant and substantial additional and extra funds and have nothing to show for it, other than a decreased bank account.
      Closing a facility or store is a business decision.  I would not disagree that some emotion is involved, however, at the end of the day, it is all about money and profitability.  Remember, the reason that you are in business is to make green dollar bills!  If the facility is not profitable, then you need to take other actions either to make it profitable or change the way that the business is operated.  There is nothing else that you can do.
      This is a great time to have the counsel of the a business consultant.  We rationally and non emotionally review the matter and give you our best counsel/insight based upon the facts of the matter and our mutual understanding of what is best for the company.  This is not to be taken lightly- this is a tough decision.  It is always beneficial to have another set of ears listening to your rationale and asking the hard questions before you decide to make a final decision.  Give  us a call if we can aid you in your decision making.

Employee Dynamics

   One of the most critical questions that many of our clients are currently addressing is the lack of finding good employees, being able to keep employees and wondering how they find themselves in the position of needing better employees.

    These questions are as significant as time-- from the earliest Biblical times, people have wondered how to acquire, retain and reward key employees.

     In today's modern world, several factors need to be addressed regarding employee acquisition and retention.  The global environment is one question.  With instant communication anywhere in the world, people recognize very clearly that they are "in contact" instantaneously anywhere around the world.  We are connected.

     The Connectiveness that we have today plays a major factor in the intergenerational dynamics of the work place.  Employees with IPADS, notebooks, notepads, cell phones, smart phones are always connected.  For some employers, this is a very challenging matter to address.  Part of the issue is that on intergenerational relations.  What this means is that we have Generation X, Y, Millennial and Baby Boomers all working together in the workplace.  Baby boomers are much different in work style and habits than either Generation X, Y, or millennial.  OK, we have to be able to deal with it-- there is no reason to fight it!!

      Firms that have a warm, inviting and stimulating climate will always win over other firms that do not possess such attributes.  When employees enjoy going to work, enjoy their colleagues and find the work to be stimulating and challenging, retention and motivation problems are non existent.  When we have clients that complain that they are unable to retain employees, the key factor that we can usually identify is some type of climatic condition that wants people not to stick around.  Money is normally never the first factor in the retention equation.  Money usually comes up 4 or 5 on a list of reasons why people like or dislike a job or company.

     Take a look at the environment that you have created at your firm.  If it is not an enjoyable place to work, if the offices are drab, dreary, computers are not current and up to date and there is always tension in the air, you probably need to make some changes OR you will continue to serve as a revolving door for employees.

     Remember, it costs normally a year's salary to hire and retain a new employee.  You will not pay it out all on day one, however, the additional training, decreased initial productivity and "getting up to speed" are all factors that take time and money.  The workplace environment is today considered the number one reason that employees seek to change companies.  If your employee turnover is high, check out your environment-- you may be amazed at what you discover.

Emergency Action Procedures-- Do you have them?

   Today in Billings Montana, we had a large natural gas explosion caused by a rock rolling down from the Rimrocks.  One house was completely destroyed, several other houses and buildings were severely damaged.  The incumbent pressure caused a lady at Rocky Mountain College, near the blast site, to be propelled out of her chair.
    The Solomon Bruce Consulting LLC offices are approximately 2.4 miles from the blast site.  We felt the pressure at our office.
     The question becomes-- do you have emergency action procedures for your business if something happens?  In the past 2 weeks, we have had extreme flooding in the Upper Rocky Mountains, with several tornadoes both sited and some set down.  Fortunately, none of the tornadoes caused any damage-- this time.  Last year, Father's day, the roof of the Rimrock Arena in Billings was destroyed by a tornado.  The facility was rendered useless for approximately 10 months, with construction being done in 24 hour shifts to reconstruct the facility.
     A meeting I had with an individual this morning addressed the matter of data security and data recovery.  This individual works for a firm that has a very secure data storage facility.  We discussed how this facility is important for data servers currently located in flood or earthquake prone regions of the world.  Relocating those computers to this facility would prevent flood damage.  The region where this facility is located is not in an earthquake zone.
     Emergency Action Procedures are something that you should have developed now, not after the disaster has struck.  These procedures should be detailed, explicit and exercised at least semi-annually to make sure that if indeed a disaster does occur, your firm has procedures in place to handle any disaster.
     Assumptions should be made regarding loss of power, water, air conditioning, heating, data and telecommunications connectivity.  What are your back up plans for your business?  How will you function until normal and ordinary services are restored to your business?  Do you need back up power generation equipment?  Do you need extra air conditioning or heating equipment?  What about staff needs if the facility is either destroyed or severely damaged?  If the roads to the facility are damaged to the point of being inoperable, how do you get people to the facility?
     The size of the business is not important when working with emergency action procedures.  It makes no difference if you have one or one thousand employees-- a well thought out emergency action plan will insure that you will be able to maintain business continuity in case of a disaster.  Sadly, some businesses have experienced some disaster and failed to develop contingency operations and emergency operations plans.  When a second disaster struck, the need for the contingency and emergency plans were vital, but undeveloped.  Don't be caught in that situation.  Call us if you need help on this matter.  Prior Planning today prevents poor performance later.

Making Tough Decisions--Just Do It!

    A client called me this morning and told me that he was going to close down one of his production facilities.  This particular client has 3 state of the art production facilities, geographically dispersed in the state which he is located.  All of the production facilities were doing well with the product they manufactured.  Each site was ran by local site management.  The inability of one production facility to generate a profit did not impact the other facilities.  Said another way, those facilities that were profitable were not subsidizing facilities that were not profitable.

    I asked the client how he had made this decision.  He told me that this particular facility was bench marked against company and industry benchmarks.  Unfortunately, the production facility that was closed failed to achieve either corporate or industry benchmarks regarding profitability.  The client said that they had tried several different things to try and increase facility profitability, but to no avail.  The bottom line was that a corporate decision was made to close the facility.

      As the client was explaining this to me, I was proud that he had made the decision without a lot of anguish or teeth gnashing.  Profitability benchmarks were established, the facility failed to achieve those benchmarks and the client was unwilling to allow one poor performing asset to weight down the rest of the company.

      The equipment in the facility can be used in other parts of the company, in other facilities.  Some equipment will be sold off and some will be sent to disposal.  The physical plant will be put up for sale.

      This client made a good decision, in our mind!  He recognized that no matter what type of additional capital infusion, marketing strategies or production techniques that he were to employ, the market for this particular product was not economically sustainable.

      If you are faced with this situation, don't wring your hands.  Establish some corporate benchmarks, review industry benchmarks and watch how your organization performs.  If the company fails to achieve those benchmarks, make some strong decisions that will allow you to not continue to put good money after bad-- causing you to lose more money.  It is not easy to close a major production facility.  Even harder is the disposal of the equipment and physical plant, however, once done, the problem is resolved and the company can they focus on the parts of the company that are profitable.

Make the Trip to the Banker a PROFITABLE Experience!

     A friend of mine is a retired banker.  In his 40+ years of banking, he served as a bank president and senior banking official in a number of different financial institutions.  We were talking the other day about what a banker looks for when a new business comes to try and get a loan..  As we work with many businesses, both large and small, I think his counsel is very applicable today.   Here is what he told me.

     First of all, the banker wants to see a business plan.  He wants to see a series of pro forma statements, that look forward on how the business is expected to perform.  He wants the assumptions made by you, the business owner to be realistic.  This is where good market research, due diligence and careful analysis of your particular industry, competition and marketplace are important.  The bank is interested in the management plan-- who is going to working and running the business?  For a small business, it may just be the owner and his/her spouse.  However, if the business is more than a couple of individuals, what are the skills, qualifications and capabilities of each individual involved in managing the company. 

     The next factor the banker told me he is very interested in is how is the business going to work in the product market.  What are the distribution channels, sales relationships, partnerships and allied alliances that the business owner has developed and established for this business.

      Another factor that the banker wants to see is how much of your money do you  have invested in this operation?  Here is what is called "Skin in the game."  How much of your skin do you have invested?  My banker colleague told me that the key here is that the more you have invested, the greater likelihood the banker will think favorably on your proposal.

      Assuming that you have done all of this correctly, have the appropriate "Skin in the game", the banker thinks that you have a viable proposal, he/she will then take it to the bank's loan committee for review and approval.  Now, the banker is meeting with his/her peers trying to convince the loan committee that this proposal is developed and well founded.  If successful with the loan committee, the banker has received approval to grant you a loan for your operation.

      My banker colleague told me that he is as interested in insuring the businesses success as you are.  He wants you to be successful with your new endeavor.  The banker did tell me that he is going to come visit your operation, talk with your staff and review how the business is run to insure that the business will be successful.  Site visits by the banker are a good way to visit with the staff-- interestingly, many things are learned through a site visit that are not revealed when in an office visit!

       These ideas are salient and germane to any business owner wanting to receive bank help.  Think about these carefully the next time that you are ready to go see a banker.  Accomplishing all of the above listed ideas will normally result in a successful bank visit.