Monday, March 31, 2014

"Ask A CEO" Questions and Answers

Many of you have asked for some visibility into our CEBI "Ask a CEO" responses to the questions that are posted by the members.  We felt it would be helpful and add VALUE to all of the CEBI members to have access to the questions and responses and so, going forward we will begin sharing the responses received to these blind questions.  Below are the questions and answers received during the first quarter of 2014. 

Let's keep those questions coming! We hope you find the sharing this of this type information to be powerful and useful.

Question: 3/28/14 – Credit Card Fees

We are a B2B company and every year more of our customers choose to pay us via credit card. I understand why, due to the rebates they receive.  We do the same with our suppliers, whenever possible, so I expect this trend to continue.
We pay about 2.5% and our fees are growing to over $10,000 per year.
We figure this cost into the smaller, more profitable orders.
However, I was curious if anyone has any strategies to offset this cost, such as a flat fee for a credit card payment or charging the customer a percentage of the cost?


1)   2.5% all in is an excellent rate considering that a major cost component is what is called interchange, the fee the merchant bank must pay the card bank.  Interchange averages about 1.75% right now. Additionally there are over 200 interchange categories. The lowest interchange is a face to face transaction of a standard personal card that is swiped then deposited within three days. Interchange factors influencing your fee are, purchasing or business cards, non-swiped transaction and rewards cards none of which you can control.
If 25% or more of your transactions are over $1,000 ask your bankcard company about the major purchase program, usually interchange plus a flat fee of a few dollars.  If they know nothing about it or want to assess a set fee north of $1,000, get another bankcard company.
With the Durbin amendment businesses are now permitted to surcharge for credit card transactions up to the amount of their cost, i.e. you 2.5%.  In highly competitive markets some business are unable to do that so they gradually increase prices, offering discounts for cash or check, immediate payment. Keep in mind that cash and checks have a cost as well as risks.
A method we employ that substantially reduced our credit card transactions, hence cost was to implement an ACH program. ACH stands for Automated Clearing House, how checks are cleared between banks. For a small fee (about $500) with your primary bank, you can establish a program, obtain software allowing your company to debit the checking account of a business or person. The cost per debit depends on volume.  We process a couple hundred debits per month, paying a flat fee per debit of about $0.50. Obviously considerably less than credit card fees.
My presentation on ACH is in the CEBI library.
It is surprising the number of businesses that will provide you with their routing/transit and checking account number. For those that won't surcharge for the cc or offer a .5% discount for ACH. An ACH risk similar to check is NSF and three day reversal clause. An enforced hefty NSF fee usually prevents NSF.  Rejected items, usually an incorrect routing/transit or checking account number, incur a $5 to $10 fee that is preventable by requesting a fax of a voided check (NOT deposit ticket) allowing your in house accounting person to obtain the correct informaton versus relying on the a conversation. Some of our clients have specific checking accounts just for ACH to prevent fraud.  Conversely, we have a separate checking account into which ACH funds are deposited and cleared daily leaving a small amount for NSFs and rejected items. Segregated accounts protects all parties from fraud and theft. Written permission to debit an account used to be required but today verbal authorization is legal. Still note the person giving permission, their position, date and time. Occasionally we fax or e-mail the client a brief standard authorization form for signature and return. ACH authorization remains in affect until rescinded preferably in writing, hence permission in writing. ACH could potentially reduce cc fees by 2/3 as well as increase cash flow.
We also use ACH with 30 day accounts, submitting an invoice, that unless disputed, we debit a specific account at the 30 day mark for the amount of the invoice.

2)  This is an easy one as we are a B2B company as well.  We specify payment terms as a part of every customer’s relationship.  Many have payment terms of 15 or 30 days (or sometimes longer).  In these cases, we simply state on the terms that credit cards are not accepted.  For those who insist, we charge an additional 2.5% (about our incremental cost), then it is their choice.  For customer who are required to pay up front, we do permit credit cards as we figure the benefit of receiving pay up front is worth the small fees.

3) We are considering only allowing CC use at time of order.  We have a number of customers who are trying to pay with CC at 30 days (they would be grandfathered). We also would like to charge a 3% premium for the use of CC to pay balances on accounts but are unsure at this point.  If you go to charging a fee please let me know if it works well.  There are always exceptions.  If we can collect the AR balance with a check we will push for immediate payment on CC.

Question: 2/24/14 – Charitable Donation Matching

Our company would like to explore adding a fringe benefit of matching funds (with a limit of course) to charities that an employee chooses to donate and are looking for a couple of items:
1) General feedback/responses from employees within organizations who have this.
2) Policy verbiage that is used to communicate and administer such a benefit.


1) Great idea on the surface with a lot of good warm fuzzy feeling along with positive PR. On the other hand I see such a program fraught with pitfalls. Which causes, agencies and charities are 503c or similar entities? Which are worthy?
Could create dissention within the company - one person and the company supporting Planned Parenthood for instance and another strongly opposed to that agencies beliefs. Could create negative PR for the above same reason. Could become an administrative nightmare depending on how many agencies are employees support. Limiting the number could also have negative PR.
A company with which we work, Digital Donations, has a program for consumers shopping at businesses to make donations when making credit card and check purchase to selected and approved charities selected by the business from Digital Donations list.  That simplifies the administrative functions, yet leaves open or opens other issues as noted above.
Personally, while I like the concept, yet I foresee more negatives than positives in instituting a charitable matching program.

2) I’ve done this for years. It’s very well received. I’ve kept it very simple. Must be a 501(c)3 organization, subject to CEO/Owner approval.
i.e. I’m a Christian, so my folks know I won’t support anti-Christian type groups.
I also put an annual deadline 2-3 weeks prior to year end in order to avoid “last minute” giving and creating an admin issue for me.

Question: 2/17/14 – The Daily Huddle

The Daily Huddle is recommended in "Mastering the Rockefeller Habits", as taught in the CEBI Strategic Core workshop. Can anyone share experiences and results from adopting The Daily Huddle?


1) The daily huddle was one of the best operational tactics we implemented in 2013. Every morning @ 8:30, we meet to report a victory, stuck and the person's critical number. Taking just 15 minutes, we have found we're all on the same page, things get cleared up, status updates occur naturally, etc. I wish I would have implemented this earlier.

2) Communication is better because information waits no more than 24hrs to be shared.  The increased communication creates clarity and clarity affords focus.  Though nobody is typically disciplined in a formal manner, daily huddles lead to increased accountability because individuals report out on the results of the previous day and their plan for the upcoming day.  We started daily huddles in our production areas in mid-2013 and the benefits have been nothing short of awesome. 
Though it happens somewhat naturally, my only caution/advice is to perhaps tailor the meeting to the group and focus of the daily huddle.  The process laid out in Mastering the Rockefeller Habits is, in my opinion, geared more to leadership, management, and professional service personnel.  Try it!  It works!

3) WOW. One of the best things we've done.  Not daily but weekly huddle for our small management team of five.  Limit it to 30 minutes.  9:00 am every Monday scheduled as a recurring meeting on everyone's Outlook calendar. Two of five work remotely. No more than 3 minutes each person; accomplished last week, wins, working on this week, opportunities and hurdles.  The meeting leader notes progress in boarding new clients, customer service and fulfillment problems and wins, pro and con customer comments and feedback and any personnel changes or issues. Bam, bam, bam.  Can lead to individal and small group conversations later.  Keeping it to 30 minutes causes everyone to be concise, no fluff, no BS and no excuses.

4) After reading ‘Habits’ we implemented a Daily Huddle several years ago.  It worked for a while until it evolved to another format.  Lessons learned:
• I suggest doing it with people standing up – don’t sit down
• Be sure all are clear that the point is NOT to solve issues nor discuss details  but to identify things needing post meeting attention and to identify competing priorities that need to be juggled
• Avoid allowing too much detail being needlessly shared
• Find a way to skip over things where there hasn’t been day-to-day change that requires sharing
• Be on the lookout for phrasing such as “we need to….” – Rather, if something needs doing be sure it is assigned
• Anyone not present that should be can be present via teleconf or Skype
• Keep timing the same each day and it needs to be a priority on people’s schedules

5) We implemented the Daily Huddle concept about a year ago and I highly recommend it.  It is a bit awkward at first, but it starts to flow in a week or so.  We take turns weekly on who facilitates the meeting.  And it is never the owner.
We have remote sales personnel in multiple cities and the huddle really helps pull them into the company culture.  The huddle has forged a better team atmosphere across the board.  People get a good sense on who is overloaded.  I have seen the staff share workload because of the huddle.
From a management perspective, you get a sense of where the company is on a daily basis.  You learn what obstacles are getting in the way and can address them.  There also is unspoken peer pressure to get priorities done.  If somebody comes to the daily huddle with the same item over and over, it gets noticed.
Lastly, I would also recommend incorporating a KPI or two into this meeting.  We started sharing a sales KPI daily.  The staff has really fed off of that.  Everyone now wants to know what our number is every day.

6) Being in a service business where workloads and requirements change hourly, we begin each morning with a Daily Huddle type meeting.  Our model is divided into six areas which are all covered in order.  By having a model, we do not waste time on non-needed discussions and it helps keep everyone’s thinking together.  Our Model is:
• Staffing needs for the day
• Affirmations
• Gripes and Complaints
• Project Updates
• Issues
• Good of the Order
We try to keep this to within 30 minutes, and if any of the professional staff cannot be there in person, we have the ability to Skype them into the Conference Room we use.

Question: 2/11/14 – Hiring VP, Operations

I am very close to bringing on a (new position of) VP Operations whose responsibilities will extend to all production & fulfillment areas (Service, Design, Project Mgmt) of the company except sales and finance. Does anyone have experience adding a similar position and can they share any lessons learned?


1) My COO acts as a VP of Ops and takes care of all that for me.  I hired a systems guy.  I went through each business system and figured out what I wanted to get out of it.  Then gave him clear requirements but then set him free to execute however he saw fit.  We have been marching through the company and I feel it is going very well.  I am a bad manager so I also have most of the company report into his structure allowing me time to work on the business rather than in it. I pay him 90k a year and he gets a 10% cut of profits on a 4 quarter running average. 
My main take away is you have to set a clear direction for your VP and let them know how you will be measuring success or failure.  A good ops guy can take it from there.

2) When hiring someone like this I like to make sure we are both clear on the performance measures that the person will be judged on.  Operations might be on such metrics as Quality (we measure by scrap and rework as a percentage of sales), On Time Delivery or Cycle Time, and Gross Profit (usually as a percentage of sales).  This makes it easy to judge if the person is moving the dial or not and takes some of the subjectivity out of it.  Take your time in finding and hiring and I personally am still looking for the magic bullet method of finding the best person for the job, all I have found is plenty of resumes, interviews, personality tests and then crossing my fingers!

3) I recommend having some guidelines (fences) on managing the operations until the candidate fully understands your business. (3-6 months).  Especially if you have unique attributes such as seasonality or specific customer requirements.  Since it’s a new position, it is important to be clear on your expectations and responsibilities.  I suggest, after 30-60 days, have the VP of Ops present a plan of action to achieve your expectations.   After 90-180 days, I suggest given formal feedback on performance, coaching and a discussion on alignment of priorities.

Question: 2/6/14 – High Mileage Car Leasing

For the first time, I'm looking to provide a vehicle to an employee other than myself. The employee is a sales person and will be traveling 60% per month, mainly by car with average trips being 150+ miles per trip. We anticipate putting 20,000+ miles a year on the car.
How should we go about getting the right vehicle? Do we lease, if so, how do you handle the high mileage portion of the lease? Or do we buy and eat the miles?
The employee does not currently have a car conducive to travel. I'm open to all options, including the employee buying a new car and we just give him a car allowance to cover his costs.


1) Look at purchasing a nice late model used car.  Substantially less expensive and you don’t get nailed on miles.

2) For our salesperson, I purchase a car, current one is a Ford Focus. If you plan on keeping a salesperson the car will be an ongoing purchase, when they show up at a customer/client location the vehicle they drive also represents the company. I do a three term on the loan and he may get four years use out of the car, I trade it in and do the process over again. I try to deal with the same auto company and salesperson they know what I am looking for and know the car trade isn’t too old and the high mileage is mostly highway miles and not city driving. My trade in price I believe have been reasonable.

3) I'm not sure if it's still available but Ford had or has a commercial leasing program in which mileage isn't such a factor. However there is a caveat at the end of the lease term, the vehicle must be purchased, or traded I on a new vehicle at the appeased value, or the dealer takes the vehicle to Auction and the difference between the preset purchase price and the actual auction sale price would need to be paid by the lessee. I did this about 6 years ago, and the last option was much cheaper than paying to mileage overage. I am not sure the program is still available, but may be worth checking out. Not trying to push Ford, but I don't know if Chrysler or GM has a comparable program.

4) Short answer:   If you have ANY other available source of cash or credit (including borrowing from relatives), NEVER LEASE A CAR.  Some things don't have "if's".   This is one of them.   I've never heard of a lessee "winning" in a car lease deal.   It's always a loser's game.  Your best bet is to let him buy a car, voucher the ACTUAL miles driven for business (with a log, start odometer and end odometer readings for each trip) and reimburse him at IRS rates.    If he's cash strapped, you might loan him the down payment and then divert 1/2 of the mileage reimbursement to repay that loan until it's retired. In the end, he has a car, you have no investment and aren't paying for mileage on his family vacations.    
I learned several things in business -- never get yourself between a guy's wallet, his woman or his car.    

5) When I took this job, we had 4 salesmen and 3 of them had company leased cars.   When the leases expired I had one guy who put nearly 40,000 a year on his car.  We had penalties for having too many miles on the car that cost us more than the value of the car.  That was the last time we ever did leases.  So since then, we have given them a monthly stipend for them to get their own car.  This amounts to $550/month.  We also have them get their own car insurance which we reimburse them for.  There might be other lease options today but I like not having to get involved with buying or leasing vehicles for other employees.

6) My advice is to provide a company vehicle (purchase or lease) for the individual sales person.  My opinion, if you provide an allowance for the sales person they will be more incline to treat the car as their own…and possibly be concerned about the miles driven and the wear/tear.  If the company owns the vehicle, the sales person typically will not ever worry about the wear and tear/miles.  My experience is providing a company cars will result in a more productive sales person.

7) While the IRS has greatly reduced the scrutiny of auto expenses, I am an old guy and still like to be very conservative. I also like to keep the asset, liability, personal car choices, and risk of employee transition "off the books". I always suggest the employee purchase the vehicle (you still need good non-owned auto liability insurance) and just bill business milage (currently the IRS rate is 56 cents per mile) on their regular expense report. This makes reporting and audit documentation very easy for both parties. If the employee does not do a good job of tracking business, we use a monthly printout of their calendar and google maps to substantiate milage. And, that also confirms activity. (smile)

8) I do not have this situation in my business, but I have as an employee in my past life.  If you want to look at having your employee own their own vehicle, I would recommend the  Runzheimer program.  They help you create a program where the employee gets a flat monthly payment and a variable payment based on business miles.   The employee would own the car, carry the insurance, responsible for repairs, etc.

9) I have various customers that are in this position.  The majority of them do short term leases, for instance 36 or 42 months with the mileage built into the lease.  Most new cars now have warranties that extend for 48 months or 50,000 miles.  That insures that any problems with the car other than maintenance will be covered under the factory warranty.  That keeps expenses down, and when the lease is done the worst case scenario is the car gets turned in and you start again.  If you purchase the car, you will have to go a much longer term to get the payment down so it is comparable to the lease payment.  If the warranty expires 2 ½ years into a 60 or 72 month purchase program, and repairs are your responsibility.  Normally, depending on the vehicle, 50% of the depreciation occurs in the first 2 years, but the payoff does not keep pace with the depreciation.  Then if you keep the car and at the end of the 5 years, it has 100,000 miles, and what is it worth?
As an example I had 2 gentlemen that were sales representatives, and they drove 40,000 to 50,000 miles per year.  They leased new Honda Accords every 2 years, over and over again.

Other CEBI Blog Articles... 

Kevin Minton
Chief Executive Boards International

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