The B2B CFO GamePlan^®

Gordon Segal is the founder and CEO of Crate and Barrel, which he and his wife founded in 1962. The Retail Marketing Association voted Mr. Segal Retailer of the Year in 1996. Mr. Segal made one of the most profound business statements I have ever read, which was documented in INC. Magazine:

Getting distracted is the biggest problem entrepreneurs face.12

The authors of The Millionaire Next Door said the same thing in different words:

Efficiency is one of the most important components of wealth accumulation. Simply: People who become wealthy allocate their time, energy and money in ways consistent with enhancing their net worth.13

The above information is critical for your future success and needs to be thoroughly understood. Let's first look at the big picture regarding your needs as we explore this important topic.

INCREMENTALISM

In terms of weight, an ounce is not very heavy. One ounce is roughly the weight of a standard envelope with one page enclosed. Gaining an ounce of weight in a day would not be worrisome for the average adult male or female. But gaining an ounce of weight every day for two years is another story, resulting in a weight gain of 46 pounds for the average adult!

The above illustration also describes what happens to business owners when sales increase. Each day, a few ounces of weight are added to the owner's time until the weight on that time is so heavy that the owner is pulled into doing things that are counterproductive and often destructive to the success of the company. In short, over time, the owner will not be able to do what he or she wants in his or her own business!

WHAT OWNERS WANT

Many business owners are frustrated to find that the people and professionals who surround them do not understand what they, the owners want. It has been my observation that almost all business owners want four things from their business:

• Increased sales
• More cash and personal wealth as a result of the increased sales
• Personal time away from the business
• A successful exit strategy from the business

To achieve any and all of those goals the owner must make optimal use of time. That is why Gordon Segal stated that the biggest problem entrepreneurs have is getting distracted. It is also why the authors of The Millionaire Next Door talk about the importance of allocating time and effort wisely in becoming wealthy.

The mastery of your own time will determine whether you will be able to obtain the four goals above. I am going to go into some detail to explain the B2B CFO® way – the cause-and-effect of your time in your own business.

FINDERS, MINDERS & GRINDERS¹²

I go into a lot more detail on this subject in my book The Danger Zone: Lost in the Growth Transition, and recommend that you read that book to get more background.

The following graph illustrates how your company is organized today. This organization is present, whether you are consciously or subconsciously aware of it. This organization exists whether or not you want it to exist. It exists regardless of the industry in which you work. Your future success is dependent upon whether or not you are able to properly function within this organization.

Let me briefly explain the meaning of the above three levels of your business.

Finder
The entrepreneur, the visionary, the leader, the idea generator and the catalyst for future change. Finders work in the future.

Minder
The administrative, accounting and operational staff of the company. Minders are historians and paper pushers. Minders work in the past.

Grinder
The people who do the physical work of the company. Grinders may be construction workers out in the field or telemarketers at a desk. Grinders work for today and are not concerned about the future or the past.

The most important function in this organization is that of the Finder. The company cannot continue without a visionary or a catalyst for future change. The other roles are also needed for a company to survive. The Minders and Grinders, however, can be replaced by others and are not individually indispensable.

THE CANCER NAMED MINDING

Finders open the business relationships and ideas that allow sales to flow into a company. We can tell the value of a Finder by viewing the increase in sales of a company. Increased sales are the result of a Finder's leadership, vision, ideas and future direction.

As sales increase, we see a quiet type of business cancer grow within the business – the cancer of incrementalism. I call this Minding Cancer.

Step-by-step, we see a business owner being dragged from Finding activities into administrative activities, which we call Minding activities. The Finder then changes roles, as is illustrated by the next graph.

So, incrementally, the Finder starts spending most of his or her time in administrative duties. What do they do in administration? I could write an entire book on this subject. The following should give you an idea about these administrative duties:

• Managing cash
• Meeting with administrative staff
• Hiring, firing and HR issues
• Meeting with bankers
• Reviewing erroneous or meaningless reports
• Meeting with accountants
• Computer problems
• Meeting with attorneys
• Time with past-due bills and disputes
• Government and regulatory issues

I have often asked Finders, “Did you go into business so you could do accounting and administration?” Not surprisingly, they always respond with a resounding, “No!” When I ask them why they do such administrative tasks and duties, I get varied responses – and the responses never address the real issue.

Decreased sales are usually the result of a business owner inflicted with Minding Cancer. A significant decrease in sales will start to cause cash problems. Cash problems will compound and may lead to the death of the company. It is simple cause-and-effect.

Let me put things in perspective: The more time Finders spend in Minding activities, the more power they are giving to the competition. Competitors will be smiling with glee at the Finder's self-imposed plight and will take the first opportunity to kill the Finder's company. They will be like jackals licking their chops over the corpse of the Finder's former company.

THE FINDER'S GUT- FEEL

People are often confused and curious about why Finders allow themselves to get Minding Cancer. They often ask me, “Why in the world would a Finder ever want to spend his or her time doing administrative tasks to the detriment of the company?”

The answer to this question is quite easy to answer. We can go back to Chapter Two of this book, to the example of pilot crashes, to see an almost exact parallel.

Some pilot crashes occur because the will to survive takes over at the moment of crisis and causes the pilot to react to his gut-feel about what should be done at that very moment. Instruments, opinions of co-pilots and other information become irrelevant at the moment of crisis because the basic desire to live causes the pilot to do what his instincts tell him to do, even if his instincts are wrong.

And so it is with Finders who become infected with Minding Cancer. They typically jump into Minding activities when there are problems with cash, accounting, payroll and other such matters. The Finder used to easily fix these problems when the company was much smaller. The company is much larger now, and there are too many people, transactions, customers, vendors and activities that seem to be moving at the speed of light, almost like a pilot viewing his plane speeding uncontrollably towards the earth. The problems are very hard to fix and often seem impossible to resolve.

The owner then begins to make decisions based upon gut-feel, just like a pilot who is about to crash. The owner often ignores opinions of others and the business instruments given to him (balance sheets, profit & loss statements, etc.) and makes decisions based upon gut instincts. The opinions of others, business instruments and other tools become irrelevant to the owner at the moment of crisis because the basic desire to keep the company alive causes the owner to do what his instincts tell him, even if his instincts are wrong.

All too often, gut instincts are distorted due to the complexities of the moment, and the company crashes. It either goes out of business or files bankruptcy.

PERSONAL TIME AWAY FROM THE BUSINESS

I mentioned above that one of the four things owners want is personal time away from the business. They want a company that can run without them, like a well-oiled machine. They want to be able to travel, spend time with the family and do other fun activities with no concern about the company's success.

A Finder with Minding Cancer can forget about spending personal time away from the business. Things are too complex to get away from the office. In fact, time at the office begins to increase instead of decrease. I have had owners tell me, “I have not had a vacation in three years,” or “I missed my daughter's high school graduation because of my business.” These Finders often feel trapped and boxed into a corner.

Minding Cancer follows them 24/7/365. Any “vacation” or other time spent away is mixed with minding the business. The owner goes online and looks at cash each day, calls/emails the staff regarding checks to cut, spends significant time answering emails, and so forth. Time at a child's ball game or other event is spent on the cell phone running the business. The Finder's voice is raised, blood pressure goes up and everyone around feels uncomfortable. The children of the Finder, hungry for attention, notice what the Finder is doing and often feel disappointment, anger or rejection as a result.

The damaging effects of Minding Cancer extend beyond the business. Divorce, damaged relationships with children, diminished time with friends, damage to personal health, decreased mental health and diminished spiritual health are some of the results of Minding Cancer.

This disease must be eradicated unless you are willing to live with the consequences of this self-imposed disease.

THE CURE TO MINDING CANCER

There are three steps to curing Minding Cancer. The Finder must:

1. Recognize the cancer signs.
2. Have a desire to get out of Minding and back to Finding.
3. Hire people that will help the Finder be cured of this cancer.

The result of getting rid of this Minding Cancer looks like the following graph.

Now the Finder can get back to the role of being the visionary, the leader, the idea generator and the catalyst for future change. Sales should then increase, and the company's organization should begin to be better balanced. This time, the competition narrowly missed an opportunity to move in for the kill. They will continue to hunt the Finder's company. But a wise Finder will create a vision to keep ahead of the competition. A really good Finder will be able to turn the tables and purchase or quash key competitors. Survival goes to the fittest Finder.

Finders should not allow themselves to become distracted. Distraction is an illusion. Rather than simply keeping busy, Finders should be engaged in activities that are truly productive. Ideally, Finders should spend about 80% of their time in Finding activities and delegate the Minding and Grinding to others. Finders should teach the fundamentals as Vince Lombardi did, make sure the fundamentals are being done and then invest the rest of their time in productive areas. The survival of their companies depend upon it.

It has been my experience that most Finders live 24/7, 365 with things that bother them about their business or businesses. The purpose of this chapter is to identify some of those concerns and to propose possible solutions.

Black Cloud #1 - April 15th

I was in Scottsdale last year having a meeting with a Finder who was a referral from a bank. We were enjoying a pleasant conversation discussing both of our companies. He was in an unique industry and was experiencing significant growth in his company.

During the conversation I asked a simple question, “Do you receive accurate internal projections about the amount of money you will owe the IRS on April 15th?”

His demeanor instantly changed. He became very agitated and said, “Jerry, let me ask you a question. Why did my CPA make me write a check to the IRS for $138,000 last week when my company doesn't even make any money?”

It has been my experience that Finders walk around 24/7, 365 with a black cloud related to the subject of income taxes. They either have had bad experiences, such as the one mentioned above or have heard about the bad experiences from colleagues. They know their company is growing and are expecting something bad when April 15th hits.

It has also been my experience to know there is no reason for a Finder to walk around with this April 15th black cloud. Income taxes are, after all, just math calculations. Mathematical calculations can be computed at any time, assuming the information being used is accurate.

B2B truism:
Many Finders spend too much energy worrying about the amount of money they will owe the IRS on April 15th.

A Solution to April 15th

There is a solution to the April 15th problem. I'd like to suggest four steps for you to follow to resolve this issue. You will sleep better at night and can get rid of this black cloud if you delegate and make sure that competent people do the following:

1. Give you accurate financial statements
2. Give you timely financial statements
3. Calculate your income taxes monthly
4. Have the calculations verified quarterly from your independent CPA

Accurate Financial Statements

Moore's Law, discussed in Chapter 13, has significantly impacted this topic of accurate financial statements.

On the positive side, it has created opportunities for Finders to have very good computers and accounting software for a minimal cost. When I first started my career, a business owner might need to invest a six-figure amount in computer infrastructure for accounting hardware and software. Today, a Finder can purchase hardware and software to help run the business at a fraction of the cost that was required a few decades ago.

The bad news is that much of the accounting software that can be purchased today does not require skilled people to input financial information, such as cash disbursements, cash receipts, bills from vendors, etc.

A Finder's natural tendency is to invest as little cash as possible in this area. Consequently, we see people who input data into the Finder's computer with no idea if the information is correct or incorrect. We then see the classic effect of GIGO – garbage in, garbage out. Often we see accounting staff who have absolutely no clue as to whether or not the financial information is right or wrong. Sometimes we discover that accounting staff have over-stated their abilities when they interviewed for the job. Sometimes we determine that the accounting staff had the basic skills when the company first started but do not have the knowledge when the company is several times larger than when it was in its infancy.

We also see the complication of related-party transactions. Finders have a tendency to create multiple companies. The internal accounting staff typically can input data, but has no idea as to whether the data as it relates to the various entities is right or wrong.

B2B truism:
Your company must have accurate financial statements in order to make accurate projections of the income taxes that will be owed on April 15th.

It is our recommendation that the Finder's financial statements be accurate each and every month of the year. It is the Finder's responsibility to hire the right people to ensure financial statement accuracy.

B2B truism:
Employees are often afraid to admit mistakes or to notify the Finder about bad news regarding the financial statements. These employees are concerned about their “job security” and will often not disclose bad news until it is absolutely imperative, even if the failure to disclose errors is to the detriment of the Finder.

Timely Financial Statements

Your financial statements need to be issued monthly. Unless there is an unusual circumstance, the financial statements should be issued no later than the end of the next month.

Calculate Income Taxes Monthly

It is very simple to calculate income taxes monthly after you have timely and accurate financial statements.

Most closely held companies are pass-through entities for income tax reporting. That often means that income from one company can be offset with losses from another company, provided there is sufficient basis in the company that has incurred the loss. There are different rules for “basis” calculation for S-Corporations and LLCs, however the rules are simple to understand.

B2B truism:
Many Finders become very frustrated on April 15th because they discover, at the last moment, that the losses in one company can't be used to offset income in a different related-party company.

You should be told, each month, the approximate amount of income taxes that will be owed on April 15th. You should then be able to know the amount of cash that needs to be set aside to pay your income taxes.

B2B truism:
There should be no negative surprises to a Finder on April 15th.

Verification From Your Independent CPA

You should have your independent CPA verify the internally-projected income taxes at least once a quarter. This will give you some peace of mind regarding April 15th. This quarterly update should not cost much money if the internal financial statements are accurate and timely.

Black Cloud #2 – Decision Making

Finders, by personality trait, are quick decision makers. This is one of the attributes that sets them apart from others in our society. They quickly gather facts and use their intuition to make decisions. This is a good trait and is necessary for good leadership. This trait, however, can lead to disaster if the facts the Finder is using are erroneous.

Most Finders are of above-average in intelligence, regardless of their formal education. This being said, one must realize that it is highly probable that the Finder of one's competition is also above average in intelligence. In the long run, the goal is to make better decisions than the competition; otherwise, the Finder runs the risk of being beaten by the competitor. The question then becomes, “How does a Finder make better decisions than the competition?”

Regardless of your intelligence, you increase the probability of making a bad decision if the information you are using to make the decision is erroneous.

B2B truism:
Bad financial information typically leads to bad decision making.

Conversely, you increase your probability of making good decisions if the information you are using to make the decision is correct. One of the reasons a Finder must invest in infrastructure is to be able to receive accurate and timely information from the accounting department. The risk is too great to cut corners on this important function.

B2B truism:
If you expect to beat your competition, you must have better financial information infrastructure than does your competition.

Black Cloud #3 – Borrowing From the IRS

One of the joys I have experienced in life is waking up early in the morning at Lake Powell to witness the beauty of the lake before any boats or humans hit the surface. The view is stunning. The lake reflects the shapes and colors of the surrounding canyons like a piece of glass. After pondering the beauty of the surroundings, I typically pick up a stone and toss it into the lake. If I toss the stone out 20 feet or so, I can watch the ripple effect of my actions. Eventually, the impact of the stone will cause hundreds of rings to form around the point of impact. It is an interesting sight and gives me an opportunity to ponder upon life.

The above is analogous to another effect of Moore's Law, which was discussed in Chapter 13. The ripple effect of this law has caused an infusion of cheap accounting software into the business community. While often appearing advantageous, the improper usage of this software can turn into a disaster for the Finder.

We see too many companies that have their Minders cutting payroll checks from software packages owned by the Finder's business. This creates great potential for problems to arise in the following areas:

• Money must be paid timely to the IRS
• Possibility arises for theft by the Minder
• Forms 941 and 940 must be filed on time
• W-2's must be filed on time

All too often, the Minder does not do things correctly in these areas and the Finder is then responsible to the IRS and state governments for the errors caused by the Minder.

Another danger exists in this area as a company gets closer to The Danger Zone. Often, as a result of cash shortages, the Finder will make a decision to not pay the payroll taxes to the IRS. The initial idea by the Finder is to use this cash, on a temporary basis, to cover other cash flow problems. This often turns into a situation that is not easily reversed.

B2B truism:
Never borrow money from the IRS or any other governmental taxing authority.

The Federal and State withholdings from your employees pay are typically called “Trust Funds.” The government does not look favorably upon business owners who delay payments on trust funds. The penalties in terms of dollars can be significant. I have seen penalties ranging from 25% to 35%. Even worse, the government can charge the business owner with civil and criminal penalties. The cost is not worth the perceived benefit. Avoid borrowing from the government, at all costs.

The payroll processing wheel has been invented. There are multi-billion dollar companies that can process your payroll on a cost-effective basis. They can also provide your company with current human resource manuals that can help guide you though the complicated issues related to human resources.

B2B truism: Concentrate on your company's core competencies and avoid re-inventing the payroll and human resources wheels.

Pitfalls of Internal Payroll Processing

Some of the pitfalls of payroll processing and human resource management include:

• Penalties for late payments
• Fair Labor Standards Act compliance
• Accounting creating fictitious employees
• Errors in withholdings
• Family Medical Leave Act compliance
• Recordkeeping
• Changes in reporting due to errors
• Employee vs. independent contractor laws
• Sexual harassment lawsuits and compliance
• Unemployment compensation issues
• Wage garnishments
• Workers compensation issues
• Minimum wage compliance for a sales force
• Domestic service compliance
• COBRA compliance

RECORDKEEPING

The Fair Labor Standards Act requires employers to keep the following records:

“Every employer covered by the Fair Labor Standards Act (FLSA) must keep certain records for each covered, nonexempt worker. There is no required form for the records, but the records must include accurate information about the employee and data about the hours worked and the wages earned. The following is a listing of the basic records that an employer must maintain:

• Employee's full name, as used for social security purposes, and on the same record, the employee's identifying symbol or number if such is used in place of a name on any time, work, or payroll records;
• Address, including zip code;
• Birth date, if younger than 19;
• Sex and occupation;
• Time and day of week when employee's workweek begins. Hours worked each day and total hours worked each workweek;
• Basis on which employee's wages are paid;
• Regular hourly pay rate;
• Total daily or weekly straight-time earnings;
• Total overtime earnings for the workweek;
• All additions to, or deductions from, the employee's wages;
• Total wages paid each pay period;
• Date of payment and the pay period covered by the payment.”24

Payroll recordkeeping is too complicated to try to cut corners or to handle internally. Eventually, the internal accounting or human resource department will make an error. The error could be significant and is not worth the risk. The hiring of a payroll processing company does not mean a Finder needs to lose control of payroll. If you wish, you can still sign checks. You do not need to have the entire payroll (net checks) taken out of your account in one lump sum.

B2B truism:
Use a payroll company to build your payroll and human resource infrastructure.

Black Cloud #4 – Overtime

There are few companies that do not make errors in overtime calculations. The penalties for making errors in overtime can be severe and can cause much damage to a company.

Overtime is governed by the Fair Labor Standards Act (FLSA) and was approved by Congress in 1938. It is stunning to me that a law created so long ago is so little known or understood by Finders today.

It is not unusual for me to be hired by a company and to discover that the company is in violation of the FLSA. The violation is often in the form of paying a person a “salary.” When bringing the issue up to a Finder, the response is typically that the person does not get paid overtime because they are on a salary. Finders often become frustrated when I explain that there are rules that require payment of overtime, even if a person is being paid a salary.

B2B truism:
A company may be responsible for overtime, even if an employee is being paid a salary.

There are certain exemptions for executive, administrative, professional, outside sales and computer employees, however; the reasons for those exemptions must be known and documented.

There are also rules that require overtime with a commissioned sales staff. The rules are somewhat complicated but are not worth the risk of violating.

The FLSA has made the following statement:

“An employer who requires or permits an employee to work overtime is generally required to pay the employee premium pay for such overtime work. Employees covered by the Fair Labor Standards Act (FLSA) must receive overtime pay for hours worked in excess of 40 in a workweek of at least one and one-half times their regular rates of pay.”25

I have participated with numerous Department of Labor (DOL) audits during my career. Typically, I have been brought into the argument after the overtime laws have been allegedly violated. I have discovered that the DOL laws, while complicated, are documented very well.

I have observed through numerous meetings with the DOL that they try to be fair but are not flexible.

I remember a wrap-up meeting with the DOL on a particular engagement. They thoroughly explained the fines and penalties. They also explained the time-frame for which the monies had to be paid. They surprised the business owner with a large fine that was in addition to the other monies that were assessed. The business owner got very upset and pleaded his case, but did not change the mind of the DOL auditor. After the business owner left the room I asked the auditor why the DOL was issuing the fine. I will never forget the answer, which was, “Jerry, this law has been in place since 1938 and the owner should have taken the responsibility to know the law.”

B2B truism:
The Department of Labor is powerful. Their laws, some of which were enacted in 1938, should be understood and complied with by the business owner.

Black Cloud #5 – Control

Few things bother a Finder more than feeling a loss of control over the company. Finders who own growth companies sometimes feel as if they are steering a large ship without a rudder.

The feeling of loss of control typically results from failure to build a proper infrastructure. Some of the infrastructure areas that cause the most frustrations are:

• Accounting
• Computer hardware and software
• Website designs
• Record keeping
• Back-up of data

Here's my advice. Never relinquish control of important infrastructure areas. This does not mean you should be a micro-manager of these areas. It does mean that you should hire the best people available so that you can trust what they are doing for your company. Regarding accounting and accounting records, I have some suggestions:

• Don't outsource your accounting. Create an infrastructure where the accounting is done on-site with accounting software that you own and that is secure within your environment. Have a computer in your office and have someone teach you how to access critical data in your company. Your employees need to know you are looking over their shoulders. You do not need to become an accounting expert. Rather, hire someone who can give you the power to get to your information at any time you wish, even if the access is remote via a laptop.
• Don't let important documents leave your company. There is no reason to let important documents (check registers, etc) leave the company premises. The problem with outsourcing accounting is the Finder often has to let key documents leave the office.
• Don't let this happen. Rather, make sure you know where the key documents are located. Let your accounting staff know that you can go to the files and look at key documents at any time. Let a professional teach you how to do this if you do not know what to look for in your company. This will not only give you a feeling of control but will also send a serious message to your staff.
• Make a soft-copy back-up of key data. Create an infrastructure environment in which key documents are scanned and saved on your file servers.
• Have someone other than your accounting department open the bank statements.
• Require a test of your back-up procedures. Require your staff to periodically show you the backup. Do not trust that it is going to get done. Be in control of this area and require people to show you the back-up data.

B2B truism:
A Finder should never relinquish control over the company.

Black Cloud #6 – Being Held Hostage

Invariably, when engaged with a company, I will sit down with the Finder and explain that certain employees have the ability to hold the company hostage. This means that certain employees have so much knowledge or so many responsibilities that, if they were to leave the company, the act of leaving would cause serious harm to the company. I have seen employees who, understanding this hostage-holding issue, have created situations where he or she has negotiated salary and benefits that exceed the market for their particular skills. This is hostage-taking by the employee of the Finder and the Finder is often afraid of reprimanding, terminating or disciplining the employee because of possible repercussions to the company.

The keys to correcting this situation are to

B2B truism:
Hostage-holding by one of your employees, whether voluntary or involuntary, is detrimental to any company.

Black Cloud #7 – The Balance Sheet

I truly enjoy visiting with Finders. I become motivated by their intelligence, their drive and their ambitions.

One of the peculiar things about a Finder is that they can always tell me their personal net worth.

If we are talking over lunch about this subject, the Finder can grab a napkin and write his or her net worth on the napkin in a few minutes. They know the value of their homes, the mortgage and the other assets they own. They have a keen ability to keep numbers in their heads and know their major personal assets and liabilities.

On the other hand, for some reason, Finders react differently when I bring up the subject of the company's balance sheet. Finders typically tell me things such as, “I don't understand the balance sheet,” or “I see no reason to look at the balance sheet,” or “I know the balance sheet is wrong, so there is no reason for me to get involved,” or “The balance sheet is not important to me because it does not show the true value of my assets.”

There are numerous reasons why you need to understand your company's balance sheet. A few of the key reasons are:

• The assets and liabilities of the company are on this page. It is very important for you to understand what the company owns in assets and what it owes in debts.
• It is highly likely that a weak accounting infrastructure or weak accounting staff will cause errors on the balance sheet. It is important for you to be able to tell people that you know about the errors and that you want the errors fixed. A Finder who does not understand the balance sheet runs the risk of employee theft and other detrimental issues.
• Your banker will closely analyze your company's balance sheet and will create key ratios mostly from the balance sheet. You want to be able to communicate your understanding of the balance sheet and ratios to your banker. A Finder who is able to converse with a banker about the balance sheet will not only gain respect from the banker but will also be able to negotiate and understand banker's terms.
• The balance sheet shows the equity you have in the company. You should know how much equity you have in your company, just as you know the equity you have in your home.

B2B truism:
The Finder must understand the company's balance sheet.

Black Cloud #8 – Employee Pay

The proper amount to pay an employee is a frustrating topic to Finders. There often seems to be no middle ground on this topic.

Business owners often feel they are over-paying employees and search for rules or guidelines for pay. One can go on any search engine to find grades of recommended pay for employees. These published grades of pay are usually meaningless.

A simple rule of thumb can be used to determine the amount an employee should be paid: Find the amount of money it will take to replace and train the employee. Unless unusual circumstances occur, the company's employees should not be paid above market value.

B2B truism:
Employee pay is dictated by the market.

B2B truism:
An employee who is paid above market will eventually leave the company.

There are a few reasons that an employee who is being paid above market will eventually leave the company:

• The Finder knows the employee is being over paid. This fact is always in the back of the Finders mind. Eventually, this will bother the Finder enough that a situation will be created to cause the employee to leave the company.
• An employee knows when he is being over paid and is smart enough to know when a Finder is creating an infrastructure that will expose the inflated salary. When this infrastructure creation is near completion, the employee will often go out and find a job with a different company in lieu of being asked to take a pay cut. Sometimes, the employee leaves to work for a competitor.

Pay your employees what the market will bear, and nothing more than that amount. There is nothing wrong with giving periodic bonuses to reward outstanding or exceptional behavior. Any bonus given to an employee should acknowledge that (1) the bonus is for a specific event or period of time and (2) any future bonuses will be discretionary and may or may not occur.

Black Cloud #9 – Statement of Cash Flows

The company's statement of cash flows is typically the financial statement document that the Finder least understands. This is an unfortunate situation because the statement of cash flows is often the most important document the Finder can use to run a company.

The premise behind the statement of cash flows is very simple: It begins with the year-to-date profit or loss and shows the specific areas where cash has increased or decreased.

While the premise of this document is simple, the practical application is very complicated. The form itself, as dictated by GAAP (Generally Accepted Accounting Principles) is inadequate.

That being said, the Finder must understand the statement of cash flows. There are ways, assuming you surround yourself with the right people, that you can understand this document.

Once you understand the statement, you can use it to run the company and be more in control of cash.

A simple way to determine if you need more help with this subject is to have your existing staff explain the statement of cash flows to you. You are in good shape if you sense confidence from the staff and if you can understand the document with the staff's explanation. The opposite response should give you cause to consider bringing in someone else to help with the matter.

B2B truism:
A Finder can't run the risk of not understanding the Statement of Cash Flows.

Finders: There is no reason to have any of the black clouds described in this chapter follow or haunt you. Get rid of them and enjoy life a little more.