I thought it would be useful in this troubling economic environment to explore complacency. Linked together with complacency is a false sense of urgency. These are the two biggest issues that I wrestle with in my consulting practice and in dealing with clients.Complacency emerges from a sense of success or perceived success. Hey, I know what I’m doing because I built this successful business. The wagons might be circled and the bank has shut me down, but I know what I’m doing. Perception might be nine tenths of the law, but here reality is a different story.

Then the urgency level starts to spike. The trouble is this is a false sense of urgency because the complacent paradigm has these people doing the same things they’ve always done except they’re doing it faster. All they are doing is digging the hole deeper when they should stop digging.

I try to invoke the unvarnished truth and get them out from under the covers and feel how cold it really is out there. Maybe it is time to slow down and really think through the business and what we need to do going forward versus the same old things that aren’t going to work anymore. We need to change.

This is the challenge for CPAs in today’s economic reality. Stop doing what we have always been doing and start dispensing real business advice to our clients. It is going to be tougher and it’s likely that the same products and services won’t get the job done. It’s time for innovation to kick in and start thinking different about what to change and how to change.

Here are seven simple management concepts that will help keep you on track and get things done. I thought it was appropriate as we get ready to celebrate another Thanksgiving.The seven steps are:
1. Know your people.
2. Insist on realism.
3. Set clear goals and priorities.
4. Follow through.
5. Reward people who get the job done.
6. Expand people’s capabilities.
7. Know yourself.

Have a great holiday, rest, and recharge your batteries so you’ll be ready to look for new opportunities behind those rocks of resistance.

Because our economic environment has bcome more precarious it is more important than ever for owners of closely-held businesses to think about their future and what happens to their business. Here are some key questions that need to be addressed:

• Have your personal goals been defined and have you established a vision for transfering ownership of the business?
• Do you have a successor in mind?
• Have you addressed the techniques for reducing or eliminating estate taxes?
• How much liquidity do you have and can you avoid a forced sale of the business?
• Is there a buy/sell agreement in place?
• What happens if you become disabled?
• Do you have adequate personal retirement savings to meet your cash flow requirements?
• What is your business worth and could you get it if you wanted/needed to sell?
• Have you considered the techniques for transfering stock to achieve your succession goals?

If you haven’t addressed these questions, you might want to take a minute and give them some consideration. In many instances, family businesses don’t have the liquidity to continue growing and lack the level of management talent and expertise needed to cope with growing a business that is capable of surviving in these tough economic conditions. In order to avoid a shutdown or a forced garage sale it might be time to address these questions before a problem becomes a crisis.

Remember it’s the business that provides for the salaries and wages and ultimately the liquidity to support the employees and the owners.

I sent my son this tip and he said, “Dad, you should post this on your blog.” So here is and I hope it is helpful.

Here is an idea you might want to pursue. We were able to get a 0% rate for 12 months on a credit card for balance transfers. We then transferred purchases relative to our new house to the card to avoid any interest payments for 12 months. This saved higher service charges and interest on the cards we used for the purchases. They went to zero. It also allowed us to avoid using our HELOC line so we have that for emergencies and we kept our cash in the bank.

This might not be available to everyone, but it is worth a try. The key is that this buys you some time when cash is king, which is a big plus.

Change covers a lot ground. It happens whether we like it or not. Based on where we are and where we are headed, we better have some.I have some thoughts -questions- running through my head on change. How do we change? What do we change to? People want to change, but then the wheels get stuck.

One of the reasons people don’t change is because they’re afraid to try new stuff. Smart people won’t try new tricks. People tend to stay with what they are good at rather than take a risk where failure could be the outcome.

Why not simplify and try to advance. The reality is if you want to achieve 80% of your objective then you need to focus on 20% of the factors involved in the process. This minimizes risk and gets you moving in the right direction.

People need to see the path and the destination. They need to clearly see what is going to take them from doing the right thing poorly to doing it well. Once they have been shown the path then it is critical to apply repetition so they really get it. You can’t over emphasize the impact of effective communication. Set the path and the direction and repeat it over and over again. Believing is what counts.

In this day and age, I’m not sure where we’re going to end up. What a mess, I just look at my SEP Plan and figured out I better keep working. And that’s exactly what I did while I watched the guys coming down the the 13th fairway. Oh well! Pretty amazing to be playing golf out here in the Rocky mountains. Yes, there is snow in them there hills, but not here in the valley (Montrose, Colorado).

We will have new stuff out on our store in the next week or so. A new ebook for CPAs to facilitate providing business advisory service to their clients, and diagnostic toolkits to aid in the assessment process. We also have a self-assessment toolkit for business owners to evaluate their businesses. I call it self medicating. In this economy business owners don’t want to spend tons of money on consultants, so I am giving them/you a self help first aid kit. We are also working on our new Building Business Value guide to help businesses navigate through these turbulent waters.

I thought it would be a good idea to let you know what will be arriving on the site over the next few weeks. Besides I didn’t have any pearls of wisdom other than “keep your powder dry, hope for the best, and prepare for the worst.”

I will get something good out for next week as you prepare for the Thanksgiving weekend.

In these days of uncertainty and tough economic conditions it is critical to take all the necessary steps to keep costs under control. Usually the first step most companies take is to wield a big sharp axe and cut their payroll, often without thought or consideration. I have a better approach. How about work simplification.

Here’s how it works. Gather each supervisor and employee and have them challenge every detail of their jobs. Here are a list of questions they should ask:

• What is its purpose?
• Why is it necessary?
• Where should it be done?
• When should it get done?
• Who should do it?
• How should it be done to get better results?

This is a simple process that can pay big dividends. It will also give you good feedback on which supervisors and which employees are really thinking. Give it a try and my guess is that it will pay dividends.

In the long run it might be a sharper tool than the unwieldly axe.

I was working on my BBV Program and thought it might be good to share some thoughts and even some questions to ask. Evaluating performance on a regular basis is critical. The key is asking the right questions before taking corrective action in the wrong direction.

There are three categories of conditions to consider. These conditions include:

1. A Business Tune-up
2. Turnaround situation
3. Are you in a crisis?

Tune-up questions should include the following:

1. Have earnings deteriorated?
2. Are sales leveling off or declining?
3. Is your workforce less inspired?
4. Are you satisfied with recent product or service introductions?
5. Have you developed a plan to maintain your rate of growth in spite of new competitors entering the market?

Now let’s review some turnaround questions:

1. Are you starting to lose money after years of profitability?
2. Do you have too much inventory that’s not moving?
3. Are you able to recruit new employees?
4. Do you have too much debt and not enough equity?
5. Do you know where you are making your profit?
6. Do you know why you sell the products in the markets you are in?
7. Have competitors taken business away from you?

Now for some crisis questions:

1. Is making payroll a problem?
2. Will your bank lend you more money?
3. Have you lost any key employees?
4. Have any vendors stopped shipping goods to you?
5. Have you had time to think about strategy?
6. Have customers who are slow pays stopped ordering?

Based on the answers to the above questions you will gain a sense of what action you might need to implement. These questions are the first steps of our Building Business Value methodology. From here we establish the scope of corrective steps a business will need and how to re-orient the business. In these times of uncertain economic conditions we thought these questions were appropriate. Asking the right questions is usually the first step in solving the problem. Don’t panic and take measured action to address the current reality of your business.

The new audit risk standards SAS no. 104 to SAS no. 111 issued by the AICPA in June 2006 will really come home to roost this year. They will put more pressure on auditors to apply the standards in the spirit they were designed because of the economic downturn. The risk for fraudulent misstatement of financial results will escalate due to the pressure on business owners and managers to report better results. Some of the reasons include avoiding violation of lending covenants and making a business look better in preparation for a possible sale. There can be any number of reasons.Typically auditors follow a checklist, but now they will be required to think and use appropriate judgment about the business. There will changes in management personnel, including key managers. When competent executives and advisors leave it puts the business in a weakened condition just when it is critical to make good decisions. In the past it was easy for management teams to run a company because it was hard to make a mistake. Now tough economic and competitive conditions demand seasoned professionals with good judgment. Many of today’s executives have never been required to deal with the uncertainty they face today.

Many of the audit teams conducting audits never audited publicly traded companies where Sarbanes-Oxley and the PCAOB established the rules. The new audit risk standards apply to privately owned companies and both owners and auditors are in for a surprise. They will have to wake up and smell the coffee and deal with a whole new world of reality.

The checklist days are over because auditors need to make inquiries, observations, in addition to gathering audit evidence to support their conclusions. Brainstorming sessions are mandatory to determine areas where fraud and material misstatements could occur. Assertions about account balances need to be evaluated. Account balances have to exist, the entity must have legal title to assets, accounts must be complete, and they must be properly stated at cost (or market if it is lower).

Cost or market could be a problem because assets may no longer be worth what was paid for them. This is an issue for inventories whose value could have slipped. Accounts receivable will be under pressure since businesses have gone downhill pretty fast and companies might not be able to meet their obligations. Therefore, bad debt write-offs could soar beyond normal ranges. Companies utilizing asset based financing will be put under significantly greater pressure.

Entire industries could be rapidly transformed and be subjected to high levels of stress. Bank covenants will come under significantly greater pressure. In addition, because banks are feeling more pressure they will start paying more attention to internal control risks. This is occurring when many companies have accounting personnel who lack the appropriate level of accounting and financial reporting training and skills.

This is the time for CPAs to go back to basics and focus on providing solid advice to their clients both on the potential risks from internal control weaknesses and on financial management of their business. It is no longer possible to survive just on preparing tax returns and financial statements.

Management is largely getting processes to achieve the goals and objectives of the organization. Managing processes and having them achieve high levels of effectiveness is like herding cats or pushing wet spaghetti noodles. It can be pretty tough. Here are some thoughts on processes that might help.Almost all processes are evolved and not designed. They sort of happen over time and are initiated with the inception of the organization. Processes were developed initially to address a specific problem and then became modified and enhanced over time. Additional controls are then put in place as errors occur. The process tends to get divided among departments as the organization grows and then losses its external focus over time.

Processes are people based and are geared to achieve the entity’s mission. They should evolve based on strategic thinking and planning. However, this doesn’t happen because strategic thinking and planning fails to get done because fire drills in most organizations have a higher priority. There is a critical failure to understand and communicate. This is a prevalent occurrence in every organization. Further, people fail to perform consistently and individual uniqueness gets injected into the process, each with different needs and priorities.

These factors make managing processes a tough job. It is critical to make processes more effective producing the desired results. Processes have to be more efficient which helps to minimize the use of our resources. Processes also need to be adaptable and adjust to changing customer and business needs. This attribute is absolutely necessary in these difficult recessionary times. We need to have the right output at the right time at the right place. We need to be totally focused on meeting and exceeding customer expectations.

Here is an interesting perception relative to the efficiency of processes. The time required for taking an input and transforming it into an output with no wait, transportation and/or checks and balance time is approximately 5 percent of cycle time. Instead of spending effort on eliminating the 95 percent of non-value activities, most effort is instead devoted to speeding up value added activities.

Good enough is no longer good enough. It is absolutely essential to exceed customer expectations. We need to empower people and go beyond the basics of meeting expectations to exceeding them. This requires us to adjust and adapt to changing conditions and be fanatical over the pursuit of continuous improvement.

Why measure? If you can’t measure it, you can’t control it. If you can’t control it, you can’t manage it. If you can’t manage it, you can’t improve it. We have a lot of work to do. The good thing is that we can do it if we plan it and are focused on setting goals and objectives. This sets the bar of excellence for all us to excel and just not be satisfied with good enough.