A few years ago, “cloud” or Software As A Service (SaaS) offerings, were limited to a few  solutions such as Salesforce, ADP and Quickbooks online. These solutions were effective for smaller businesses or for a point solution, but still left a void for larger enterprises.

 Based on our experience the last two years, Bridgepoint has seen increased client demand for true enterprise solutions that are cloud hosted. It seems that over time, our clients’ “willingness to consider” has turned into “an insistence on pursuing” a cloud solution. In fact, in several recent system selection engagements, our clients have opted to limit their choices exclusively to cloud solutions over the alternatives.

 So why is the cloud so popular and what are the benefits? Our clients consistently have sited the following reasons for preferring a cloud solution:

• Ease of deployment – no hardware, no network. All you need is an internet connection and a browser.
• No maintenance – the system is maintained and supported by the software vendor
• IT staff focus – many organizations use their IT resources to develop technology that they sell. These revenue producers must focus on external projects.

Sounds great, but what’s the catch? Well, yes, there are also some concerns to consider with cloud solutions:

• Security – how can I be sure that my sensitive sales, customer and financial data is protected?
• Functionality – cloud solutions tend to be less functional than their on-premises competitors
• Integration – mature organizations may have many internal solutions that need to talk to the enterprise system

Is a cloud enterprise system the right solution for you?

The only way to know for sure is by conducting a careful and broad assessment of the current market alternatives and evaluating them against your specific needs.

Be a hands-on leader. The CEO has significant challenges to confront in this environment, with both employees and external third-parties looking for assurances, guidance and direction. The CEO must lead by example.  It is important to demonstrate intellectual honesty and facilitate an understanding of the company’s current reality, and not allow management to swim in the river of denial.  Optimism can be valuable, but a misguided focus about better times or an unrealistic future recovery may paralyze the organization and impede real focus on solutions.  Leaders must think strategically about what the company needs to accomplish now and convey a clear vision. They must promote the development of ideas and creativity among the management team. Status quo is not an option. Company leadership must motivate people towards action with active, hands-on leadership, and cannot do so sitting behind closed doors or by merely sending emails.

Communicate, then communicate more. A sense of urgency to address the company’s challenges must be conveyed both to the leadership team and downstream in the organization.  It is not business as usual.  Ongoing programs and initiatives must be reevaluated, while new initiatives and an execution plan must be developed.  Decisions regarding realignment may have to be made with limited or imperfect information. Some mistakes may be made, but incremental successes with ongoing adjustments are better than inaction.

The CEO must lead the change and motivate everyone to step-up.  They must encourage the team to go beyond any fears and envision a stronger future.  An immediate, not tentative plan should be crafted; speed of implementation and execution matter.  There can be no sacred cows with respect to people, products, divisions, projects or processes; everything must be reevaluated for its impact on short-term liquidity, and it may require some measure of pain.  Managers that are not up to the task of critical thinking, reengineering or implementing change are often part of the problem, not the solution.  Difficult decisions may have to be made, or the business will be at risk.  Keeping all stakeholders up to date is critical, and promotes credibility.

Time for assessment.  Realigning the company’s strategy requires an assessment of the financial and operational condition of the business.  The first step in crafting a realignment plan involves an assessment of the sources and uses of cash, timing of each, and an analysis of real profitability.  Information reporting in this regard is essential.  If sufficient, detailed reporting is not being produced or available, then the CEO must ensure finance and IT personnel work together to generate the desired information quickly.  This is not a task force assignment to install new systems or design the most comprehensive reporting.  It is an urgent collaboration of key personnel to determine what can be produced to give management critical information necessary to make the required assessment. It is imperative this information be centralized and controlled by the finance department, which already understands reporting integrity and cost allocation issues.  Reports generated by department heads are often less reliable and may not contain critical elements of related revenue and expense.

The devil is in the details. It is also important that reporting information be detailed enough to enable management to evaluate profitability, cash requirements and trends of each product produced, each store managed, each operating plant, each service provided, each office location, each project constructed, each division, and so on.  Leadership must be able to take a fresh look at each of these and see what is profitable and what isn’t, what is consuming cash versus throwing off cash, and assess what positive or negative trends are likely to continue in the near term.

Working capital is critical too.
It is not sufficient to analyze only revenue and expense.  Working capital components and other elements of the balance sheet are equally important.

Inventory – The amount of inventory required to produce a product, as well as slow-moving or obsolete inventory, can materially impact the company’s liquidity. Inefficient inventory turnover can be due to deficient IT systems and reporting in tracking inventory, overbuying related to purchase discounts, excessive SKU’s, and inadequate gauging of promotion response, among other things.  Excessive inventory levels creates many costly issues and can lead to increased warehouse space, higher shrink, spoilage, markdowns and margin erosion.

Inventory needs to be reduced, or liquidated at a discount in the case of slow moving or obsolete products and converted to cash. Additionally, SKU’s should be reduced to what generates the
most revenue.  Just-in-time inventory tracking and ordering processes should be implemented, together with a strategic sourcing program, where practical.  EBITDA improvements will be realized through all of these measures, however, attaining these benefits may require additional expenditures in the form of IT and systems investment.  The return on such related costs will be realized through increased analytical capability, enhanced visibility of gross profit by SKU, improved order accuracy and reduction in space and payroll requirements.

Accounts Receivable –  Accounts receivable collection efforts may need to be improved in order to increase timeliness of collections and decrease days outstanding.  Be aware of who may be at risk themselves and be at the head of the line to get paid.  In some cases discounts may provide incentives to customers to pay sooner. Conversely, some customers may need to be culled, either because they are not good payers, or because they are not sufficiently profitable based on the resources they consume.  Again, there can be no sacred cows; everything must be evaluated with a fresh perspective.  Even if a company has been a long-term and loyal customer, if they are creating a drain on cash flow, terms must be adequately renegotiated.

Accounts Payable – Stretching out payables would seem to be an elementary step in maximizing cash flow, but it is surprising the number of companies that don’t change their payment policies, even as their own customers have slowed payment to the company.  Often a significant bump in cash flow can be achieved by increasing payable days outstanding across the board. The number of customers and vendors the company uses should also beevaluated.  Costs  of time, resources and supplies to order/pay/process an unnecessary number of vendors is often overlooked, and can dilute volume discount potential.  In some cases, the company must recognize where it has an effective partnership with certain suppliers and negotiate changes in terms or credit such that the company does not bear losses alone, benefiting short-term liquidity.

Review non-core assets.  Non-core assets must be assessed for both their current cash value and their borrowing capacity.  Planes, non-essential vehicles, extra parcels of land or buildings, certain leases and equipment may all have some amount of current cash value.  If the company owns its headquarters, store locations, warehouses or distribution centers and this real property is essential to the business, it should be evaluated for sale-leaseback transactions to bring cash into the business today.  In the case where core or non-core assets are not pledged to a lender and fully liened, they should also be evaluated as a source of additional collateral and borrowing if reasonably favorable terms can be achieved.

Take a hard look at corporate overhead. It is understandably difficult for any CEO whom has been with the company for a number of years to step back and look at corporate overhead objectively.  Many times the CEO has presided over certain program and cost build-ups, and has established personal relationships with management as well as line employees. This may affect the CEO’s thought process and impact objectivity.  Other times, the CEO may know the course of action necessary, but due to emotional or personal ties may prefer someone else, such as a CRO, be the “bad guy” recommending or implementing necessary reductions. Objective assessments of personnel and outputs, such as divisions/services/products/locations, can be some of the hardest to tackle for long-term management.  Where a CRO is relied upon to execute a realignment strategy, the appropriate authority must be vested in that person or implementation will fall flat.

Personnel – People who have managed successfully in the past may not be up to the task going forward, and the CEO cannot afford to keep those who are indecisive or frozen in “analysis paralysis”
if they are going to effectively realign the business.  Retain people who don’t have parochial interests – ones that will take initiative and rise to the challenge, who can motivate and encourage people, and build the company’s future.  Be on the lookout for lower level people who have leadership capability and can step up. While it can be difficult, it is important to cut from the top down and for leadership to set the example for the rest of the company.  Evaluate whether the job function is necessary, not the person in it. If the rank and file perceive inherent unfairness in personnel realignment, productivity, quality and moral will suffer.  Furthermore, people remember how they were treated and certainly will be communicating with customers, suppliers, competitors and other employees as they exit. So it is critical to be fair and clearly communicate the company’s challenges and plan, especially if a reduction-in-force, or RIF, will be part of the realignment.

Personnel realignment should be attacked surgically and intelligently, not piecemeal, and can be achieved through combining functions, reducing layers, removing indecisive managers or those not current with technology, and intensifying resources where the company focus.  In addition, people would rather lose benefits than their job, so it is also important to evaluate benefit plans for cost reduction, employee contribution increases or increases in qualifying benchmarks, or in some cases benefit elimination.

Programs, Products & Locations – “Economics 101” teaches us to ignore sunk costs, which means it doesn’t matter how much the company has spent on something in the past. A determination to continue spending must be made based on expected future profits and cash flow.  While management might be emotionally wed to a historical program, that cannot color today’s assessment of whether or not that program/product/location should continue.  Closure of negative contributing stores or products, and walking away from significant sunk costs, is understandably difficult but necessary for a company’s survival in turbulent times.  Assets from shuttered programs/locations may be deployed elsewhere, or sold and converted to cash.

SG&A -There are a multitude of SG&A items that vary across industry and geography that must be evaluated for impact on liquidity and profitability, including office space, equipment, leases, contracts and services, commission and incentive structure, manufacturing, distribution and logistics, property taxes, and many others. These are critically significant and must be individually considered in any business realignment assessment.

What is your capital spending?  The CEO must judge capital projects by what they consume and what they generate, and as previously discussed, ignore sunk costs and emotional ties.  Projects that won’t earn the cost of capital or reduce resources, such as with IT investment, or won’t come on-line and generate net cash flows for several years, need to be evaluated for deferment or termination.  Management should not, however, defer regulatory or safety issues, or maintenance spending where feasible.  The CEO and finance team should also scrutinize capitalized expenses to ensure they represent true capital projects, and that department costs have not been masked as capital expenditures, artificially distorting operating results.

Summary

Realigning the company’s strategy and focus from revenue generation to cash conservation is essential in these uncertain times.  It requires preparing for downside scenarios, not misguided optimism, functional realignment of responsibilities, and streamlining processes. The CEO must set a bold course and convey confidence to all stakeholders that the company is monitoring events, tackling problems and developing solutions.  Management must promote awareness, establish aggressive budgeting and tracking, and enforce accountability across the organization.  Understanding cash implications of decisions must take priority over blind pursuit of revenue growth or continuation of sub-par historical initiatives.  Announcements regarding cutbacks and retrenchment should be made alongside good news of the company’s future stability.  Maintaining communications with stakeholders, key suppliers and customers will provide credibility to management and position the company to emerge stronger and better positioned for both the short- and longer-term.

About the author: Dawn Ragan has 20 years of experience in financial services and turnaround management. She is currently the Director of Business Turnaround & Restructuring Services at Bridgepoint Consulting, a Texas-based professional services firm. Previously, Ragan was a principal of a national advisory firm. She was also a senior manager and a member of the restructuring practice of a Big Four accounting firm and vice president of a Wall Street investment bank. She is a member of the American Bankruptcy Institute, Turnaround Management Association, Association of Insolvency and Restructuring Advisors, International Women’s Insolvency and Restructuring Confederation, and Texas Wall Street Women.  You may contact her at dragan@bridgepointconsulting.com.

What do you need to do?

• Employers are obligated to inform employees by January 31^st of the market value at the time of exercise so they can prepare their personal returns correctly. The easiest way to do this is by sending employees a letter. Click here for a sample.
• In addition, the company must file Form 3921 with the IRS to notify them about the exercise by February 28th. Click here for IRS link instructions for Form 3921 and a link to the form itself.

 New Year’s Checklist:

• Accounting Updates – Accounting standards issued the past few years have refined the methods and requirements for a number of accounting methods: revenue recognition for particular industries, such as software and hardware sales; variable interest entities (VIEs); lease accounting, both for lessee and lessors; financial statement presentation etc.
• Intangible Assets – Have you reviewed your intangible assets and performed required impairments tests?
• Clean up and reconcile accounting data from 2011 – Have you addressed all of the “miscellaneous” accounts you promised yourself to address by 2011 and still haven’t?
• Finalize 2012 budget – Budgeting in today’s world is a dynamic exercise. Have you finished your 2012 Budget?
• Complete Information Technology system check – With your IP accessible through your netork, IT security is more critical than ever. Isn’t it time to get around to an IT security update?
• Prepare for auditors – Save time and money by being 100% ready for your auditor’s 2012 visit.
• Address HR issues and staffing for 2012 – Have you addressed the HR issues you know are a problem? In 2011, the IRS specifically targeted businesses who mis-classified employee/contractors. In addition, undocumented workers can also be a target.
• Banking Relationships – Are you up to date and current with all of your reporting to your bank and other creditors? Are you in compliance with all loan covenants?

It’s time to get organized for the New Year. Please contact us for more information about Bridgepoint Consulting’s 60+ professionals whose range of experience includes accounting and finance, internal controls, SOX compliance, and IT consulting.

Our panelists were: Mark Stearns, Senior Director Center of Excellence, SAP BusinessObjects; Troy Saidleman, Account Manager Governance, Risk and Compliance , Oracle Corporation; James Walton, Senior Manager, Ernst & Young, Advisory Services; and moderated by David Roe, Director, Governance Risk & Compliance, Bridgepoint Consulting.

The panel discussed the path to increasing the use of technology/tools in the audit process; the challenges in transforming to more automated data analysis solutions; and examples of benefits gained from embracing such transformation.

A resounding theme by the group was the opportunities to broaden risk coverage and control monitoring through implementing these technology solutions in today’s world of budget constraints. Another theme was the need for Internal Audit leaders to continue developing and improving the technical capabilities of their staff as a critical success factor.

“Junior Achievement is a terrific cause,” said Monica Gill. “We’re thrilled to be a part of this corporate challenge hosted by Silicon Labs”.

The Corporate Relay consists of 5 runners covering the marathon distance of 26.2 miles. This year’s race included 1,600+ participants from corporate, public sector, school, and running clubs.

Bridgepoint’s Blue Team included: Felipe Vega; Monica Gill; Bill Getchell (Motion Computing); Joe Leake; and Bill Patterson.

Bridgepoint’s White Team: Pete Pearson; Shelly Hobbs; Kristin Madl (Ortho Kinematics); Zac Fellabaum (Let’s Gel); and Cho Law.

“What fun it is to enjoy the camaraderie and competition with these runners from Bridgepoint and our clients,” said Bill Patterson.

See the race results at austinmarathonrelay.com.

About Bridgepoint Consulting LLC

Transforming companies to achieve success, Bridgepoint Consulting is a leading Texas-based professional services and consulting firm. To bridge gaps and accelerate growth, the firm offers on-demand, experienced professionals and strategic services. Bridgepoint Consulting provides expertise in finance, compliance, IT, transactions and restructuring.

Serving Central Texas for over a decade, Bridgepoint Consulting has more than 60 professionals and has worked with 200 clients in the past 24 months. The firm’s growth and success is a result of its high-caliber professionals and disciplined highly-responsive approach to addressing its clients’ objectives.

By Gary Dinges | Monday, June 20, 2011, 11:34 AM

A pair of ads from Austin-based EnviroMedia Social Marketing are getting national attention after being honored by the Public Relations Society of America.

Two of the marketing firm’s public service announcements — one for radio, one for TV — were recognized earlier this month at a ceremony in New York.

An ad for the Texas Department of State Health Services’ “Yes You Can” smoking cessation campaign won a Bronze Anvil Award in the radio public service announcement category. Listen to it here.

And a Don’t Mess with Texas spot starring George Strait nabbed a Bronze Anvil Award of Commendation in the TV public service announcement competition. Watch it here.

“The Bronze Anvil Award continues to celebrate where the real action is in the public relations industry and where real practitioner expertise, creativity and communication effectiveness shine the brightest,” said Tanya Morah, the 2011 Bronze Anvil chair and an associate professor of communications at Wilberforce University.

EnviroMedia focuses exclusively on environmental and public health issues. It is based in Austin, and also has an office in Portland, Ore.

Seeing as BPC is new to blogging, we’ve got a considerable backlog of things we’ve been chomping at the bit to share. We found a post by Jeff Bussgang of Flybridge Capital over at VentureBeat last month that we’ve been meaning to blog about.

Bussgang’s post outlines some savvy advice for entrepreneurs entering into the “investor pitch” phase of their business growth. As an advisory and management consulting firm that most often comes into contact with businesses at critical junctures in their growth, we’ve helped many firms get ready for due diligence. As Flybridge’s Bussgang writes:

“Assume that everything you say will be thoroughly checked out in due diligence. If you claim credit for a company where you played a small role, it’s bad form. I recently called the CEO of a company that an entrepreneur bragged they had led during the pitch. When the CEO told me they were a minor player and left after a brief two years, I stopped spending any more time evaluating the opportunity.

Remember, investors are professional BS detectors. Err on the side of underselling your background because the BS alarm bells may ring in the first few minutes of introduction and spoil the rest of the presentation.”

That rings true for our team here at Bridgepoint. When we’ve gone through an “investment prep drill” with businesses looking to prepare for due diligence and take on additional funding, we’re told it helps to accelerate funding. That has everything to do with identifying the true strengths and, yes, the true liabilities of a company in transition and understanding how to get out ahead of those strengths and weaknesses ahead of the due diligence process.

In a business environment as saturated and credible as Central Texas, investors have seen everything. Real prep for due diligence prepares a business to confound those expectations and move into a new phase of growth built on real strength and, most importantly, sound information.