Questions Down, Answers Up

  
"What would you do about that problem?" Good question, asked most every day in most companies. One Chief Executive Boards International member says it's usually asked by the wrong person. He says that question ought to be most often asked by the boss, not the subordinate.

Think about it. How often do you, the boss, become the "go-to guy", where your subordinates are asking you for answers? If your answer is, "most of the time", it's because you have it backwards. Instead, you're the one who should be asking your subordinates, "What would you do about that problem?"

Try inverting the information flow in your company, such that you're asking most of the questions and your subordinates are providing most of the answers. In other words, "Questions down, answers up". Give it a try, and you'll find yourself becoming steadily less essential to the day-to-day operation of the business.

Also check out:  Want Your Employees to be Independent Thinkers?

If you have some other ideas on how get your employees to think and act on their own, please click "Comments" below and share them with others.  

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Terry Weaver

CEO

Chief Executive Boards International
http://www.chiefexecutiveboards.com/

TerryWeaver@ChiefExecutiveBoards.com

LinkedIn -- The Reference Checker's Friend

  
Businesses that sell mostly or exclusively to other businesses have found low return in most social media investments. The exception, in my view, is LinkedIn -- the social media site for businesses and professionals. It's not uncommon for people to use LinkedIn in one way it was intended -- to get a "warm" introduction by a mutual acquaintance to someone or some prospect you're trying to reach.

There's another use, however, that I've been amazed by. Use LinkedIn as a stealth reference checker. Here are a couple of ways I've done so:

1. I was recently helping a client screen some resumes for a key management position. We got down to one of the front-runners, and I said, "Let's have a look at this guy on the web." Google popped his LinkedIn profile, and would you believe a friend of mine was a mutual connection (knew both of us)?  I called him up, told him who we were considering, described the job opening, and said, "How do you think he would do in that role?"
      
   Long pause. Then he said, "Well." Another long pause. "I really can't divulge inside information from his previous employer."  Long pause (mine).  "Wow", I said, "Thanks so much -- I completely understand, and thanks for saving another business owner a whole lot of time."
      
   I consider this one to have been a bullet dodged.
      
2. Third Party References -- Search LinkedIn for other employees of a candidate's previous company. Call them and see what they'll tell you about the candidate, if they happened to be there at the same time. These aren't the hand-picked references a candidate might give, but rather people who in most cases have no reason not to be honest with you.

If you have some other ideas on how to use LinkedIn for recruiting or reference checking, please click "Comments" below and share them with others.  

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

 
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8 Red Flags You Don't Want on Your Balance Sheet

  
Business owners have (mostly) a working knowledge of their income statements. For most, the balance sheet is something they don't understand and pay little attention to. I've seen several balance sheets recently that would best be described as train wrecks. Curious, since it's the balance sheet that several people look at first. Those would include:

• Bankers -- The balance sheet is the cross between the altimeter and the fuel gauge (the income statement is the airspeed indicator) for your business. The balance sheet shows the "vital signs" of the business. Bankers reject loan applications out of hand if they can't make sense of the balance sheet.  Their logic?  Why ask questions of you about the anomalies?  If you understood your balance sheet it wouldn't have been in that condition. 
   
• Buyers -- If you're remotely interested in the long-term value of your business, a credible, buttoned-down balance sheet is essential. If you present a balance sheet riddled with questionable items to a potential buyer, they automatically assume the rest of the financials are suspect, as well. The result is a reduced multiple for their valuation and far more rigorous due diligence, since you've damaged your own credibility right at the gate.  If it somehow gets to an offer, you can be sure there will be multiple painful contingencies in the buyer's favor. 
   
• Plaintiff's Attorneys -- I heard this from a sharp young lawyer this week. Things like loans into and out of the company, to and from shareholders, make it appear the business is being used as a personal "piggy bank". Running personal expenses through the business (usually over the company credit card) gives a similar appearance. Besides giving the impression of a lack of financial discipline, these actions can, in fact, provide evidence that the business entity (LLC, S-Corp or C-Corp) is really just a fake -- that the business is actually commingled with personal funds on a day-to-day basis. In the case of a judgment against the company, from which your corporate veil is intended to protect your personal assets, you give a plaintiff's attorney plenty of ammunition to prove that there's no veil at all -- the business and personal assets are commingled and therefore not protected. This is known as "piercing the corporate veil", and could easily allow a financial mishap in the company to take you down personally, as well.

I've recently worked through forensic accounting projects with several small businesses to clean up "red flags" on their balance sheets. Have a look at yours, and see if you find some of these red flags:

1. Loans to Shareholder -- These are usually distributions in drag, sometimes made because posting the cash you took out of the business as a distribution would strip all the equity out of the company. Good example of commingling funds. If you need cash to buy groceries, borrow it as a personal loan or a home equity loan. You went into business to make money, not to loan yourself money.
    
2. Loans from Shareholder -- These are usually equity investments in drag. You put money into the company. Why was that? Company not financially healthy enough to support itself? If the business needs to borrow money, borrow it from a "real" lender, like a bank or an individual. Can't get a loan from someone else? I don't want to loan you money, either.  In the case of any shareholder loans, a sharp/aggressive IRS agent may try to use these accounts to retroactively terminate an “S” election if the company has more than 1 unrelated shareholder --  major tax consequences.
    
3. Missing Fixed Assets -- Where are the vehicles? Where's the furniture? Where's the office equipment (computers, servers, etc.)? The purchase cost, as well as the accumulated depreciation should be easy to find. There's a difference between fully depreciated assets and MIA assets.  Accumulated depreciation greater than cost of assets (see #4 below) means the owner does not look at the balance sheet and his/her accountant does not look at it either.
      
4. Negative Assets -- Negative assets are usually liabilities in drag. Some can be legitimate in limited cases. Most aren't -- they're usually posting mistakes, sometimes years old. Clean 'em up.
    
5. Negative Liabilities -- Why would you owe someone negative money? Generally a posting error.
    
6. Negative Equity -- How did you take more money out of the business than you've made? Using the business as a front for your personal cash flow problems?
      
7. Other "chaff" -- Odd "remainder" amounts in dormant accounts. If an item on the Balance Sheet hasn't changed in 2-3 years, it deserves a look. Is it real? Is it relevant? Can you explain what it is and why it's there?
      
8. Inexplicable "clearing" accounts -- QuickBooks Payroll is famous for creating these. They're a red flag that payroll doesn't balance, and sometimes accumulate to big numbers over time, meaning that expenses are being either overstated or understated, depending on the reason for the payroll imbalance problems.

If you routinely give your Accountant a messed up balance sheet – he will clean it up (or should) and send you a large bill to do it.

Take a hard look at your Balance Sheet, just as a buyer, banker, plaintiff's attorney or IRS agent would. Does it pass muster? Can you explain every line item? If not, get a good financial advisor to help you sort through where the bodies are buried, get them cleaned up, and get your balance sheet presentable as evidence that your company is operating in control and you're running a business, not a personal piggy bank.

For most small businesses, making sure your cash, accounts receivable, inventory and accounts payable accounts are clearly reconciled to the supporting schedules, lists, bank statements, etc. is all the owner needs to do every month to feel good about the balance sheet.  By the way, you'll be surprised at how much you learn about your business during the exercise. 

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Terry Weaver

CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

 
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