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Smart
Negotiation Strategies |
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Our mission is to provide information and strategies
to business owners and managers for improvement
in the effectiveness of its business management
so that key objectives can be realized.
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Ted Hofmann
- Principal/Senior Consultant
John Morre - Principal/Senior Consultant
Linda Panichelli - Principal/Senior Tax
Consultant
CFO Plus, LLC
1450 Grant Avenue, Suite 102
Novato, CA 94945-3142 |
Home Office |
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415-898-7879 |
Toll
Free |
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866-CFO-PLUS
or 866-236-7587 |
Fax |
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415-456-9382 |
Email |
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thofmann@cfoplus.net
jmorre@cfoplus.net
lpanichelli@cfoplus.net
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Website |
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www.cfoplus.net
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Have
you ever found yourself in a situation where you
could have gotten exactly what you wanted, if
only you had known how to go about it? Do you
know people who always seem to get exactly what
they want? Would you like to be a master at the
art of negotiation as well? It is not as difficult
as you might think. No matter whether you are
negotiating with the local dealer for a new car
or you are negotiating the specifics of a contract
with a client, the same strategies apply and one
simple communication technique prevails.
Negotiation
is simply the process of reaching an agreement
between two or more parties -- preferably one
that yields a “win-win” outcome. It is different
from the bartering process in which one party
is in a position of power and the other party
must accept something less valuable. Negotiation
typically involves a series of ongoing discussions
and compromises.
Successful
negotiation techniques or strategies originate
from a basic premise of human nature which suggests
that people act, or fail to act, for the purpose
of enhancing their own egos. Successful negotiators
who understand this principle know that the best
way to determine the other person’s position,
is simply to listen. Dr. Sigmund Freud, the father
of psychoanalysis, stated this principle in these
terms, “If you can get the other fellow to talk
enough, he simply cannot disguise his real feelings
or his real motives.” By listening intently,
the successful negotiator can gain useful insight
that he or she may use to persuade another person
to act in a certain way.
Knowledge
is power when it comes to the process of negotiating.
This makes it important to gather all the facts
you can on the front end and plan accordingly.
Answering some or all of the following questions
can be very helpful as you prepare to negotiate
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What
are your goals and which ones are most important? |
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What
are the goals of the other parties involved
and which ones do they perceive to be the
most important? |
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What
will be the major issues be in this negotiation? |
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What
are the strongest and weakest points in your
overall position? |
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What
are the strongest and weakest points in the
other parties overall position? |
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What
is the minimum you are willing to accept? |
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In
your opinion, what is the minimum the other
parties are willing to accept? |
So,
now you have planned your negotiation, but what
are the specific techniques you should use to be
successful ? Here are three very simple ones
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Pay
attention to verbal and non-verbal indicators.
Listen to the parties you are negotiating
with. In addition to learning more about
their motives, you might discover a better
deal than you ever thought possible. Don’t
ignore those non-verbal signals, however. A
lack of eye contact or a nervous twitch may
give you insight as well. |
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Focus
on solutions that allow all parties to win.
Remember that regardless of what you want,
the other parties must feel satisfied. |
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Keep
your emotions in check. Many times personal
conflicts or emotional issues can interfere
with an otherwise successful negotiation. |
No
matter what you are negotiating for, the same
rules apply. Successful negotiation strategies,
however, must be adapted to the specific aspects
of each situation and to each individual involved.
Many have wondered how some powerful businessmen
have successfully negotiated one incredible business
deal after another. Actually, their secret may
not be so mysterious. Chances are, they simply
encourage the other person to talk while they
listen. They know by instinct and experience
the truth of Dr. Freud’s statement. “If you can
get the other fellow to talk enough, he simply
cannot disguise his real feelings or his real
motives.”
Smart
negotiation strategies start with smart business
and personal financial strategies. We can help
you build a plan for your future. Call us today. |
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Watch
Out for the Key Person Discount
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Our mission is to provide information and strategies
to business owners and managers for improvement
in the effectiveness of its business management
so that key objectives can be realized.
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Ted Hofmann
- Principal/Senior Consultant
John Morre - Principal/Senior Consultant
Linda Panichelli - Principal/Senior Tax
Consultant
CFO Plus, LLC
1450 Grant Avenue, Suite 102
Novato, CA 94945-3142 |
Home Office |
: |
415-898-7879 |
Toll
Free |
: |
866-CFO-PLUS
or 866-236-7587 |
Fax |
: |
415-456-9382 |
Email |
: |
thofmann@cfoplus.net
jmorre@cfoplus.net
lpanichelli@cfoplus.net
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Website |
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www.cfoplus.net
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If
you own a small business, have you looked
closely at the depth of your management team?
Do you have a management succession plan in
place? If the answer is no, you are not alone.
Most small business owners look at one thing
– the company’s management ability. It may
be worth your time to look at both.
Unlike
most major corporations with diverse management
responsibilities, the success of many small
businesses is largely dependent on a single,
key person. This key person could be the CEO,
who makes strategic decisions based on his
business experience, or a salesperson, who
has established great relationships with the
company’s largest customers. No matter which
scenario, this person has shown great success
when it comes to growing the business, and
as a result, stores a vast amount of intellectual
capital. The loss of such a person, for any
reason, could have a devastating effect on
the ongoing cash flow potential of the business.
This loss is also likely to reduce the company’s
value in the eyes of investors or potential
investors. As a result, most business appraisers
or valuation professionals apply what is called
a key person discount when placing a going-concern
value on such a business for investment, taxation
and/or other purposes.
Key
person discounts may have an extremely negative
effect on the value of any business. Valuation
professionals often apply hefty discounts
based on experience factors with little or
no other supporting documentation. The Tax
Court allowed a twenty-five percent (25%)
key person discount in the settlement of one
estate tax case. Recent studies indicate
a range of discounts between 5% and 10%.
According
to Revenue Ruling 59-60, the loss of a key
person “may have a depressing effect on the
value of the [company’s] stock.” In addition,
this ruling instructs valuators to consider
what effect losing a key person would have
on “the future expectancy of the business,”
and “the absence of management-succession
potentialities.” Key person discounts may
or may not apply to small and midsized businesses
depending on a number of factors, including:
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Management
Composition: Discounts become less
likely as management becomes more diversified
in that both strategic and tactical decision
making authority is spread to additional
persons. Comprehensive management succession
plans coupled with appropriate training
programs can also reduce the key person
discount. |
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Specializations
or Operational Complexity: Some businesses
may require a professional designation
to conduct business while others may necessitate
a great deal of technical know-how to
operate efficiently. If a single person
possesses such expertise, a key person
discount may be applicable if a suitable
replacement is unavailable. |
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Sensitivity
to Change: Businesses in cyclical
and highly competitive industries have
historically been more sensitive to operational
changes and more likely to incur financial
declines with the loss of a key person.
A business that has a high degree of sensitivity
to change requires a higher key person
discount. |
Offsetting
factors which may reduce or eliminate the
need for the key person discount in valuing
a business include:
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Insurance:
Proceeds from a company-owned life
or disability policy on the key person
could serve to offset any projected decrease
in future cash flows resulting from the
loss of the key person. |
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Net
Cost Savings: As a general rule of
thumb, the key person’s compensation and
benefits are commensurate with his/her
value and tenure with the business. In
all likelihood, any replacement would
require less compensation. |
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Non-compete
Agreements: This type of agreement
is designed to protect the small business
in the event that the key person submits
his/her resignation. By implementing
a non-compete agreement, the key person
may not go into direct competition with
the business he or she left. |
Is
your small business prepared to handle the
unexpected? Are you thinking of stepping
aside and relinquishing control to someone
else? Are you contemplating the sale of your
business? In any case, watch out for the
consequences of the key person discount.
A lack of planning on this important issue
may result in severe consequences not only
for you, but for your investors, or worst
of all, your heirs.
We
can help you avoid this issue. You can make
intelligent decisions, which make your company
systems dependent rather than people dependent.
Give us a call today to talk about your unique
situation.
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![](images/2003-JulAug/blue_cfo.jpg)
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Our mission is to provide information and strategies
to business owners and managers for improvement
in the effectiveness of its business management
so that key objectives can be realized.
|
|
Ted Hofmann
- Principal/Senior Consultant
John Morre - Principal/Senior Consultant
Linda Panichelli - Principal/Senior Tax Consultant
CFO Plus, LLC
1450 Grant Avenue, Suite 102
Novato, CA 94945-3142 |
Home Office |
: |
415-898-7879 |
Toll
Free |
: |
866-CFO-PLUS
or 866-236-7587 |
Fax |
: |
415-456-9382 |
Email |
: |
thofmann@cfoplus.net
jmorre@cfoplus.net
lpanichelli@cfoplus.net
|
Website |
: |
www.cfoplus.net
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Small
Changes Make a Big Difference!
Have
you ever heard the phrase, “You can’t improve
what you can’t measure,” or “What you can
measure, you can manage”? These ideas are
the foundation of a dynamic fact-based management
tool known as performance measurement. Performance
measurement goes beyond traditional financial
measures, which only tell the story of past
events. It provides factual feedback that
allows management to make real-time course
corrections. The goal of performance measurement
is to allow management to view their company
more clearly, and consequently, make better
decisions. The specific financial or non-financial
indicators selected should best represent
the factors that lead to improved customer,
operational and financial performance. A
comprehensive set of measures tied to overall
company performance requirements represents
a clear basis for aligning all activities
with the company’s goals.
Most
blue-chip organizations use performance measurement
systems to determine whether they are fulfilling
their vision, achieving their short-term objectives
and meeting their long-term strategic goals.
The measures and goals are usually narrowly
focused on a critical few. It is neither
possible nor desirable to measure everything.
The focus should be on achieving organizational
goals via performance measures, and not the
measures per se. If a particular measurement
can not be linked back to strategic planning,
it should be eliminated. Many companies are
now using a relatively new approach to strategic
management that was developed in the early
1990s by Dr. Robert Kaplan (Harvard Business
School) and David Norton (Balanced Scorecard
Collaborative). They named this system the
‘balanced scorecard’.
According
to Kaplan and Norton, “the balanced scorecard
is a management system (not only a
measurement system) that enables organizations
to clarify their vision and strategy and translate
them into action. It provides feedback around
both the internal processes and external outcomes
in order to continuously improve strategic
performance and results. When fully deployed,
the balanced scorecard transforms strategic
planning from an academic exercise into the
nerve center of an enterprise.”
A
particularly interesting case study of Dell
Computer Corporation demonstrates the concept
of performance measurement and shows how seemingly
small changes in just one strategic area helped
make a big difference in reversing the organization’s
destiny:
When
Thomas Meredith joined Dell as CFO back in
1993, the company had just posted a six-month
loss of $66 million due in part to large inventory
write-downs. Sales were increasing rapidly,
but cash reserves were dwindling and its stock
value was down more than 75% from the prior
year. Meredith’s assessment of the situation
was simply “our balance was out of whack!”
He went on to say, “Balance is especially
important in performance measurement. Wall
Street rewards companies that balance growth,
liquidity and profitability. My job is to
figure out how to balance those things.”
Meredith
quickly identified the cash conversion cycle
(CCC) as a key performance measure to establish
the better balance that he was seeking. Using
the metrics of days of sales outstanding (DSO),
days of sales in inventory (DSI) and days
of payables outstanding (DPO), he added DSO
and DSI, then subtracted DPO to determine
the CCC. During the next fifteen months,
he focused Dell employees on how they might
influence the CCC equation. They gradually
began accelerating inventory turnover and
collection activities while slowing down supplier
payments. By the end of 1994, the cash conversion
cycle had been improved to an acceptable forty
days. By 1998, it had been further improved
to a phenomenal negative eight days.
Dell
has continued to grow rapidly, but no longer
at the expense of liquidity or profitability.
Several new performance measurements (including
CCC) have helped the company hone its direct-sales-build-to-order
strategy to generate billions of dollars in
cash reserves since 1995. Dell has continued
to be one of Wall Street’s top performers
over the past several years.
Unlike
historical financial information, meaningful
performance measurements allow an organization
to make ongoing changes in real time. They
provide the tools to look ahead and adjust
according to circumstances. Excellence in
all performance areas will result in the “bottom
line” taking care of itself.
To
summarize, if you can measure it, you can
manage it and small changes do make
a big difference – just keep in mind what
Dell was able to accomplish adjusting just
one element. When you want to explore the
changes your company can realize by making
small adjustments, give us a call. That’s
why we are here!
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![](images/2003-JulAug/green_cfo.jpg)
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Our mission is to provide information and strategies
to business owners and managers for improvement
in the effectiveness of its business management
so that key objectives can be realized.
|
|
Ted Hofmann
- Principal/Senior Consultant
John Morre - Principal/Senior Consultant
Linda Panichelli - Principal/Senior Tax
Consultant
CFO Plus, LLC
1450 Grant Avenue, Suite 102
Novato, CA 94945-3142 |
Home Office |
: |
415-898-7879 |
Toll
Free |
: |
866-CFO-PLUS
or 866-236-7587 |
Fax |
: |
415-456-9382 |
Email |
: |
thofmann@cfoplus.net
jmorre@cfoplus.net
lpanichelli@cfoplus.net
|
Website |
: |
www.cfoplus.net
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Certified
Public Accountant or Profitability Consultant?
Recent
scandals have served to shaken public confidence
in the accounting profession. Accountants,
themselves, have spent years trying to step
out of the “number-cruncher” stereotype. If
you take a close look inside your CPA firm,
you could be surprised to find out that your
accountant has the ability to be more than your
own personal number-cruncher. Yes, that’s right,
your CPA may have the answer to questions other
than what you owe the IRS. As you will see
in this Business Performance Advantage Success
Story, accountants are taking performance measurement
concepts to a new, and quite profitable, level.
“Most
companies only go to accountants to get their
taxes and financial statements prepared,” says
one Business Performance Advantage consultant.
“But after delivering these standard accounting
services for more than 20 years, I realized
that there was a great opportunity to step outside
the box and offer enhanced services that interpret
those same statements.” To that end, the BPA
consultant offered profitability consulting
services for more than five years using a number
of modeling programs. According to this consultant,
convincing company owners of the value of this
service offering was the first challenge. Convincing
them that their accountant was the one to provide
the service was the next one.
The
BPA consultant continued to search for the right
tool that quickly and easily shows clients
how their financial statement data could be
leveraged into forward-looking performance measures.
After all, improved corporate performance can
often lead to an increase in the client’s bottom
line. Combining the in-depth knowledge of performance
measures with the interactive goal-setting and
modeling capabilities of a software program
allowed the consultant to finally attain this
objective.
The
BPA consultant can now quickly break-down complex
financial statements into easy-to-understand
business drivers. For example, a single page
display might show a wide range of key parameters
such as average days for accounts receivable,
monthly accounts payable, cash flow, etc.
Have
you ever wondered what would happen if you increased
your prices by 10%? What if your debt was reduced
by 20%? Your BPA consultant can work through
many “what if” scenarios, which will allow you
to set goals for your company. Business owners
can specify a desired objective, such as a specific
cash flow figure, and the solution will indicate
how the stated goal may be achieved by adjusting
certain business drivers. For example, a company
may increase cash flow to the desired level
by decreasing the days in inventory from 120
days to 90 days and decreasing the average days
for accounts receivable to 30 days. If this
solution is too severe, manual changes can be
made and the consultant will respond by indicating
how this change will impact cash flow and what
other parameters need to be modified to meet
the original objective.
One
BPA consultant reports that most of his clients
are small- to medium-sized businesses whose
managers have little or no financial training.
“When you talk to them about balance sheets,
income statements and cash flow statements,
the most common response is a glassy-eyed stare.
On the other hand, when financial data is displayed
in these terms, their excitement is palpable
because now, for the first time, they see information,
not data, and they can understand how this information
affects their profitability. I have yet to
have a client who wasn’t impressed with this
presentation. But even more importantly, every
client who has seen the presentation has substantially
benefited from it.”
What
scenarios do you want to explore in your own
business? What goals do you have for this year?
Next year? Five years from now? Give us a call
to discuss the things that keep you awake at
night. We can help.
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Our mission is to provide information and strategies
to business owners and managers for improvement
in the effectiveness of its business management
so that key objectives can be realized.
|
|
Ted Hofmann
- Principal/Senior Consultant
John Morre - Principal/Senior Consultant
Linda Panichelli - Principal/Senior Tax
Consultant
CFO Plus, LLC
1450 Grant Avenue, Suite 102
Novato, CA 94945-3142 |
Home Office |
: |
415-898-7879 |
Toll
Free |
: |
866-CFO-PLUS
or 866-236-7587 |
Fax |
: |
415-456-9382 |
Email |
: |
thofmann@cfoplus.net
jmorre@cfoplus.net
lpanichelli@cfoplus.net
|
Website |
: |
www.cfoplus.net
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Some
have called it the “health hippo.” This nickname
is indicative of just how large and far-reaching
this act of federal legislation is. The Health
Insurance Portability and Accountability Act
of 1996, or HIPAA, signifies change for many
employers as well as health care organizations.
The Centers for Medicare & Medicaid
Services (CMS) is responsible for implementing
the various and unrelated provisions of this
legislation, therefore HIPAA means different
things to different people. One of the most
common misconceptions is that HIPAA only applies
to health care providers and insurance companies.
This is not the case. The law applies to
any employer that sponsors an employee benefit
plan covered by ERISA, or the Employee Retirement
Income Security Act. This benefit plan must
also have 50, or more, participants or be
administered by a third-party for the employer
to be required to comply with its provisions.
HIPAA
compliance focuses on Protected Health Information,
or PHI. PHI includes any health care data,
electronic or otherwise, that can be linked
to a specific individual. The basic privacy
principle suggests that organizations that
possess personal information related to an
individual’s health care, or payment for it,
can only disclose the information as outlined
in the following scenarios:
To
the individual;
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Pursuant
to a signed consent form necessary to
carry out treatment, payment or health
care operations; if not, then pursuant
to a signed and narrowly crafted authorization; |
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To
the state or federal government for the
purpose of public health, abuse/neglect
investigations, etc. |
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Disclosing
summarized data, which can not be linked
to any specific individual, is generally
acceptable. |
HIPAA
privacy regulations took effect on April 14
of this year for large health plans. Small
health plans, or those with annual receipts
of less than $5 million, have an additional
year to comply. It is important to note that
the penalties for non-compliance can be steep.
Violation of a single standard can result in
penalties of up to $25,000. Fines of up to
$250,000, and imprisonment, may be imposed for
certain knowing violations. If you have already
complied, be sure to keep up the good work. Remember
to distribute privacy notices to new hires,
to conduct regular training, and to ensure that
service agreements with third party administrators
and business associates are HIPAA compliant.
So,
what is next? For those of you who are still
struggling to comply with this year’s privacy
rules, you may not be thrilled to hear about
the new security rules. Security regulations
go into effect on April 21, 2005, for large
plans, and April 21, 2006, for small plans.
These regulations have a more narrow focus
and apply only to electronic PHI. Remember,
the privacy rules apply to PHI in any form.
Electronic
PHI includes any information stored in, received
or sent by a computer (email), as well as
phone voice response and faxback systems.
However, information transmitted by telephones
including person-to-person phone calls, paper-to-paper
facsimiles, and voicemail messages is not
covered.
The
new rules do not require the use of any particular
security measures but the regulations do set
forth a number of required standards, along
with implementation specifications for each
standard. Administrative, physical and technical
safeguards must also be implemented in order
to protect electronic PHI.
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Administrative
safeguards include items such as developing
policies and procedures regarding workplace
security and information access |
• |
Physical
safeguards include such items as policies
and procedures regarding limiting access
to facilities, as well as computer workstations |
• |
Technical
safeguards involve the implementation
of access control mechanisms and methods to preserve data integrity |
Even
though the security rules compliance date for
HIPAA is a long way off, taking action now may
not be a bad idea. Adding information systems
representatives to your HIPAA compliance team
is a good start. Also, get a copy of the security
matrix set forth in the regulations. It will
serve as a checklist for evaluating your organization’s
compliance with each standard. By determining
exactly what you already have in place, you
can then easily identify the changes necessary
for you to ensure HIPAA compliance in the future.
If you aren’t sure what to do next, give us
a call. We’ll walk you through the HIPAA maze.
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