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BUSINESS GOALS

January/February 2013

FAMILY GOALS

OWNER GOALS

OWNER GOALS ____________________________________________________________ Small Business Digital Deception

FAMILY GOALS ____________________________________________________________ Does Your Family-Owned Business Have a Succession Plan?

Letter from Partner

EDUCATIONAL CURRICULUM FOR FAMILY-OWNED BUSINESSES


Contents January/February 2013

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2 I N T HE N E W Y E A R The New Year has arrived and I can hardly believe that January is almost over. Now is the time for all of us to take a look back at those business plans which were formulated at the end of last year to be sure that those plans are on track and that they are being implemented appropriately.

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3 G A ME C H A NG E R Over the years, I’ve been asked, “What is the value of having a really good financial professional in my organization?” My answer is always the same – a great person in that role (or lack of one) is a game changer for a company.

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5 F OUR S IMP L E T IP S T O D E T E R T HE F T For the vast majority of manufacturing/distribution companies, inventory is usually the company’s most costly investment. Unfortunately, it is also the easiest asset that can be readily stolen and resold.

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6 “F OUN D E R” & “SUC C E S S OR” A R E N O T R E A L JOB T I T L E S Succession planning needs a new empowering vocabulary. Founder and Successor are boxes that cramp the dynamic nature of transferring a business across generations. Succession implies replacement.

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IN THE NEW YEAR BY DAVID KRAJANOWSKI | PARTNER

dkrajanowski@singerlewak.com | 949.261.8600

The New Year has arrived and I can hardly believe that January is almost over. Now is the time for all of us to take a look back at those business plans which were formulated at the end of last year to be sure that those plans are on track and that they are being implemented appropriately. In addition, we are excited to announce that we will be rolling out a University Series Program

ward to our next edition to learn more about the content, timing, and locations of the Series. Make it a great month!

for Entrepreneurs and FamilyOwned Businesses during the next few months. Please look for-

DAVID KRAJANOWSKI CAN BE REACHED AT DKRAJANOWSKI@SINGERLEWAK.COM OR 949.261.8600

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GAME CHANGER BY DAVID KRAJANOWSKI | PARTNER

dkrajanowski@singerlewak.com | 949.261.8600

Over the years, I’ve been asked, “What is the value of having a really good financial professional in my organization?” My answer is always the same – a great person in that role (or lack of one) is a game changer for a company. The next question is always, “How can that be?” Let’s look at ways having that type of professional can be a game changer.

A high quality financial executive should learn what the actual day to day operating challenges are so they can understand the processes of the business From the financial side, this person prepares timely financials. Is that what you mean by a game changer? No, but it lays the foundation for what a game changer can do. THE COMPLETE FINANCIAL PACKAGE Your company’s top financial professional should be deliver3 | SingerLewak

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KEY PERFORMANCE INDICATORS

ing a timely financial package to management that includes a financial snapshot of where the company is (balance sheet), operational report (income statement) and where the cash is (cash flow statement). More importantly, all of these should be compared against what the company is expected to do. As a game changer, the financial professional also prepares an executive summary highlighting the good, the bad and the ugly, with appropriate commentary on variances. Anybody can prepare a list of expenses that exceeded the budget. A game changer goes beyond a list, searching for why it happened and coming up with alternative recommendations for management to fix a problem or take advantage of an opportunity.

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A game changer also provides input on the developing of Key Performance Indicators (KPIs). Financials by their very nature report history. A forward looking game changer develops KPIs to provide meaningful comparisons to desired results, enabling management to take proactive steps to either accelerate positive trends or correct missteps. TOP TO BOTTOM APPROACH Another game changing ability is understanding the business from top to bottom. A high quality financial executive should learn what the actual day to day operating challenges are so they can understand the processes of the business. This will give them the knowledge to make suggestions for improvement. In addition, going out on a few sales calls helps the game changer understand the business from a different perspective. This involvement also helps earn respect from management teammates as well as from employees throughout the company. The game changer also gains an understanding of what

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is critical to other members of the management team. This behavior will promote cross department teamwork. COMMUNICATION IS KEY This leads us to another critical area – the ability to communicate. All reports are just data if the information contained in them is not understood. Effective communication turns those reports into knowledge that people can use to make informed decisions. A game changer has to be a storyteller, as sometimes it is the second or third version that finally makes sense to those needing the information to do their jobs. The ability to teach along the way in a manner that builds trust vs. being lectured to is valuable. Sales acumen is also a must for a successful financial professional. Changes need to be “sold” to others in management and the ability to negotiate successfully is game changing behavior. BUILDING RELATIONSHIPS IS

IMPERATIVE TO SUCCESS Positive vendor relationships are another game changing ability that a great financial executive must possess. We often default to banking or other financial relationships, but the list can be very long including: legal, insurance, accounting, material vendors, property management, etc. Many incoming financial professionals try to be game changers by quickly changing vendors to get “savings”. The major issue ignored by an inexperienced or unsophisticated person in this role is the relationships behind the pricing. Too often the discussions never happen and wholesale changes are made to bring in new teams which bring a cost of transition into the mix. A game changer knows how to negotiate a win/win for both the company and the vendor so as to build even stronger relationships. BUILD FOR SUCCESSION

sionals know how to build an organization below them and continually build bench strength. I have seen many top financial professionals continue to move up in an organization to become COOs and even CEOs. Demonstrating the ability to build a strong department with highly talented people who are promotable is an indicator of a true, growth-oriented professional. So the question for any business owner, board or management team member is simple. Is your top financial professional a game changer or a maintainer and reporter of numbers? What will you now do to make sure the right person is in the right seat to enable you to start the New Year out right? DAVID KRAJANOWSKI CAN BE REACHED AT DKRAJANOWSKI@SINGERLEWAK.COM OR 949.261.8600

Lastly is the area of succession. Game changing financial profes-

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FOUR SIMPLE TIPS TO DETER THEFT BY JEROME VERMEULEN | SENIOR MANAGER jvermeulen@singerlewak.com | 818.999.3924

For the vast majority of manufacturing/distribution companies, inventory is usually the company’s most costly investment. Unfortunately, it is also the easiest asset that can be readily stolen and resold. The reason most criminals typically get away with inventory theft is due to weak internal controls. Below are some simple tips that can be easily implemented. INSTALL CAMERAS Place them strategically throughout the warehouse and make sure that everyone knows that the cameras are recording and will be viewed by management. Cameras allow management to catch employees engaging in unethical behavior, as well as to serve as a deterrent for unethical behavior by employees who know they are being watched. BE ORGANIZED On the surface this may not seem like much of a control. However, consider this – if you don’t know where an item is located, i.e. you cannot find it, then how can you expect to control it? Employees will be more inclined to steal if the warehouse is unorganized and they sense that there is a 5 | SingerLewak

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for the company to hire an external company to dispose of scrap rather than handling it internally. If employees know that they will not be in control of disposing of items identified as scrap, they will be less inclined to create a scrap pile with the intent to steal. good chance their crime will go undetected. At a bare minimum, consider numbering each location and clearly identifying each inventory item. Thereafter track each item by location. IMPLEMENT SPECIFIC CONTROLS FOR SCRAP ITEMS A common method used by employees to steal inventory is for them to create scrap products and/or classify good products as scrap. Consider implementing specific controls relating to scrap items. For example, one control could be that multiple employees need to agree and sign off on a tracking mechanism that the item is lacking in quality and should be considered as scrap. Another control could be that the person who disposes of the item cannot be the same person who identified the item as scrap. An even stronger control would be

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CONDUCT PERIODIC CYCLE COUNTS Consider implementing a control whereby the warehouse staff conducts small, frequent counts of a small portion of the inventory on a regular basis. By doing this you should be able to see a gradual improvement in the accuracy of the inventory records as well as being able to uncover any misappropriations in a relatively short period of time. If employees know that these counts are occurring on a regular basis and discrepancies are being investigated, they will be less inclined to steal. Please do not hesitate to contact us if you have any further questions and/or require assistance improving your internal controls. JEROME VERMEULEN CAN BE REACHED AT JVERMEULEN@SINGERLEWAK.COM OR 818.999.3924

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“FOUNDER” & “SUCCESSOR” ARE NOT REAL JOB TITLES BUSINESS GOALS

BY TERRY WHITE | SPECIAL CONTRIBUTOR

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twhite@ideatransfergrid.com

Succession planning needs a new empowering vocabulary. Founder and Successor are boxes that cramp the dynamic nature of transferring a business across generations. Succession implies replacement. Business Continuity seems to say change is the enemy. Keeping a business in the family shouldn’t be about adding to success—it’s about compounding success. What words will capture that multiplier effect? When you ask successful business owners in their 50s how they see themselves in 10-15 years ahead, no one seems eager to exit. Most talk about continuing the aspects of being CEO that they love and giving up the day-to-day burdens. The parts they love consistently involve the satisfaction of building relationships and the stimulation of creative thinking. Now talk to the next generation engaged in the succession process. They don’t talk about being Dad’s or Mom’s clone. They see themselves expanding products capabilities, capturing new markets, discovering joint ventures, leveraging technology. They want to move the company into a new era.

future with an informed vision.

Founder and Successor certainly do not capture these aspirations. Here are two role descriptions that founders and successors are quick to adopt. Ambassador matches CEOs who want leverage their experience and reputation on behalf of the company. Let them stay involved building networks and promoting the firm among customers, advisors, industry resources, centers of influence. Let them tee up strategic ideas for growth but spare them the analysis, logistics, and implementation. Developer strikes CEOs-to-be as the right idea. It instills confidence to explore the landscape for new opportunities prudently. It frees them from feeling they must replicate the founder’s entrepreneurial risk-taking. It lets them innovate and engineer the

Even if these roles don’t make it onto business cards, they reflect the mindset and energies of each generation. They also remove the trap that one role replaces another, offering an overlapping time frame where each role supports the other for as long as they want.

Terry White co-founded IdeaTransfer over three decades ago to perfect communication links between companies and customers, advisors and clients, managers and technicians, entrepreneurs and successors, presenters and audiences. Visit www.ideatransfergrid.com

TERRY WHITE CAN BE REACHED AT TWHITE@IDEATRANSFERGRID.COM

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OUR FIRM

THE SKILLS YOU NEED. THE SERVICE YOU EXPECT.

ENTREPRENEUR-OWNED BUSINESSES

We understand the inter-relationships between the Goals of the Family, the Owner and the Business. Any one of these may impact the others in a significant way. We represent this with our FAMILY BUSINESS GOALS MODEL:

SingerLewak knows the importance of relationships to excel and meet the needs of entrepreneurs and their businesses. Our client service relationship stresses client strategy and sound advice in all aspects of business - including the transfer to a new generation, the sale, or the operation of the company in perpetuity.

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Family-Owned Businesses have been the drivers of our economy for a long time. We understand the significance of the family business structure, as well as the day-in, day-out efforts that have made an OWNER OWNER OWNER economic impact on both your local and the national community. GOALS GOALS GOALS

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DAV ID K R A J A N OW S K I

DAV ID K A M AT H

S A L LY AUBUR Y

ROB S C HL E N E R

S T E V E C UP I NG OOD

M A R K C OOK

J IM P I T R AT

G L E N N C A R N IE L L O

dkrajanowski@singerlewak.com | 949.261.8600 dkamath@singerlewak.com | 949.261.8600 rschlener@singerlewak.com | 949.261.8600 jpitrat@singerlewak.com | 310.477.3924

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Entrepreneur & Family-Owned Business Newsletter - January/February 2013