DANGER ZONE

The Danger ZonePat O’Brien

Partner B2B CFO®

The Danger Zone

Business fundamentals• Common illusions

Life cycle of a business• How a business starts• How a business grows• How we get to The Danger

Zone

What do we do about it?

Characteristics of the entrepreneur

Live in the future; pull others into the future

High ethical and moral business

core values

Creative, visionary, innovator, dreamer

Relationship builder

Risk manager

Why do entrepreneurs start businesses?

Freedom to “run the

show”

Innovative product

Provide superior service

More income

Create value for the future

How does it start?

Infrastructure Creation

Build an infrastructure

Bankers

Vendors

Lenders/leasing companies

Employees

Build an infrastructure

Machinery/ equipment

Accountants/attorneys

Procedures/processes

Office space/buildings

Owner’s Activities

Building relationships

with customers

Creating relationships

with vendors

Delegating tasks to

employees or associates

Causing sales and cash to

come into the company

Infrastructure Peak

Business Grows

High customer service

Short cash collection cycles

Few customer complaints

Low overhead

Personal sacrifice by the Founder

As a result of Infrastructure Creation is Infrastructure Peak.

Company runs “lean and mean”

A Shift in Perspective

“I should have a raise”

“We need more people so we can

take time off”

“We need a better building”

“I need a new car/house/vacation…”

“We should buy more equipment or

inventory”

A result of running lean is......

1. Burn-out – of owner and employees – who have been doing the 100-yard dash for 100 miles

2. This ‘extra’ cash leads to thoughts like:

Result of Shift

During infrastructure peak

Less thought is given to the needs of the customer

“lean and mean” is no longer the mantra of the company.

Outgrowth of Infrastructure

Symptoms of outgrowing

infrastructure

Customers

Complaints increase

Orders decrease

Problems increase

Productivity

Quality decreases

Inaccurate information

More meetings

EmployeesHigher turnover

Increased theft of time

Increased cost of benefits & training

Cash

Cash shortages

Receivables increase

More dead inventory

Owner lends money to cover overhead

Vendors

Delay deliveries

Relationships suffer

Time is spent finding new vendors

Result? The Danger Zone

The Danger Zone is created when the cash needs of your business far exceed the cash available to meet those needs

Owner’s New Activities

• Endless meetings, with staff, bankers and lenders, attorneys, accountants...

• Analyzing cash flow• Deciding which bills can be paid• Hiring or firing staff• Writing checks

But …

• They hate doing it • It’s not their skill set – not good at it• They don’t know what they need, or how

to go about filling those needs

They need to realize that:

A business is more than just getting customers

They need complementary skills – more than currently exist within the company

Traditional Organization Chart

Real Organization Chart

Real Organization Chart

FinderThe entrepreneur, the visionary, the leader, the idea generator and the catalyst for future change.

MinderThe administrative, accounting and operational staff of the company.

GrinderThe people who do the physical work of the company. Grinders may be construction workers out in the field or telemarketers at a desk or the sales staff in a company.

Different Life Time Zones

Finder

Works in the FUTURE.

Minder

Works in the PAST.

Grinder

Works for TODAY.

Finder Becomes a Minder

When the Owner’s Activities Shift

BEFORE• Building relationships with customers• Creating relationships with vendors• Delegating tasks to employees or associates• Causing sales and cash to come into the

company

AFTER•Endless meetings with bankers and lenders, attorneys, accountants

•Deciding which bills can be paid•Hiring or firing staff•Writing checks•Analyzing cash flow•Making collection calls•Purchasing computers

Owner Must Return to Finding

Stop trying to solve all the problems

Rely on others for Minding

• Find someone who is good at it• Bring in someone Finder can trust

Return the focus to finding new customers

Refocus on product and market factors

Let the Minder Find the Cash

‘Liberate’ cash tied up in A/R, Inventory, fixed assets…….

Re-negotiate credit facilities based on:• Clean and timely financial statements• Acceptable key ratios• Evidence of improving cash flow

Find alternative sources of credit• Bank• Asset Based lenders• Subordinated lenders

Pat O’Brienpatobrien@b2bcfo.com

214-536-3095