Cash Flow Archives - Page 3 of 3 - TurnAround Executive Coaching

A new book called ‘The Challenger Customer’ points out that government and business are both much larger than in 1990. The result of this huge increase in scale is more stakeholders who review your contract or grant. The judgment of one person is replaced by the varying perspectives of a committee. Committees don’t agree internally so everyone gets more cautious with the contracts.

Each stakeholder adds an extra rule – just so that their unpleasant teammate can’t report them to the boss.  A grant that took one person 3 days to process in 1990 is reviewed now by 5 people on average, based on data in the book. And the new massive rule writing threatens to inflate the cost of ink.

I direct a non profit with 7 contracts. Let’s look at typical changes this year  —

September – new rule that you can’t file a renewal until it expires although expirations freeze contracts. Government returns 42 page application. I respond and complain.
October – Government says “my boss says the renewal is fine, send it back.”  (a week later) “Oh. I’m returning part because the person who signed before is no longer eligible.”
November – new insurance certificate is required November 1 but the insurance company won’t issue for the next policy year until it begins on the 15th. Contracts paused.
December – insurance declarations certificate is no longer acceptable.  New form required. Payments Paused.
January – new language required on the Additional insured in new insurance form and is more characters than the Insurance Company computer allows. Government response =”Not my Problem”. Director starts screaming at broker and insurance company until they shrink the type and provide a magnifying glass for government to read the text.
January again – new insurance policy is accepted, all is fine, but no money. Government replies – “we did not mean that you get the money, we have to send to Comptroller now”

I seriously wondered if there was a political vendetta against us. But no, the local Jewish Community Center has been receiving $15,000 per year. The new rule is that amounts over $5,000 require an audit. The cost of the audit? $15,000

So, apart from more whine, wine and vacation – what can we do?

If you are small or midsized, you need a Strategic Plan for growth, or a partner non profit to outsource administration, or a planned possible closure.

Growth – A study sponsored by Goldman Sachs indicated that non profits in 2005 needed to have an Operations Budget in the $8-$10 million range for long term sustainability. Growth is uncomfortable but you need the scale to afford the labor costs to handle all of the stakeholders.

Outsource – If you are small and specialized – consider an affiliation with a larger general agency who allows you program autonomy as long as you cooperate on financial and legal.

Wind Down – A community group here has stopped applying for government money and realize that they are vulnerable to closure if volunteer vision does not continue. That’s not a bad thing. If we do good in non profit work and then close – it does not ruin all the good that has been already done.

The good news is that your feeling of smothering is not paranoia or inability to handle the top job. You are being smothered!  (in addition to any other problems you have).  More good news is that you have choices. But –  the bad news  – you need to respond before the rest of us finish you off so we can have your contracts and grow 🙂

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A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

A crippling snowstorm has closed my nonprofit today.  I can rest easy. It’s difficult to be a nonprofit fraud victim when you’re closed. But that strategy is impractical for the longer term  🙂

Nonprofits attract fraud like ants to honey. Why?

  1. It happens because you have money. If your total revenue is $100, you are relatively safe from fraud. There is not much theft from lemonade stands. When you receive a grant for $10 million, people notice. Board recruiting suddenly becomes easy. You attract Freddie, whose sister Betty — owns a building perfect for renting as a school. You need a new building. Freddie uses the board position to push the lease to Betty at a high price. The nonprofit gets the school, Betty gets rich, Freddie gets a finder’s fee. It’s corrupt, and often impossible to prove.
  2. Fraud happens because nonprofits don’t pay that well. The typical profile is a female who has worked in your nonprofit for 3 years, has considerable responsibility, and doesn’t make that much (Non Profit Quarterly 12/21/2007)
  3. Fraud happens because nonprofits build a corporate atmosphere of trust. Can you imagine your local bank being as friendly as you are?
  4. Finally, Fraud happens because nonprofits are famously weak on punishment. Sam, the front desk guy that everyone loves, stole $10,000 by tampering with checks received (NPQ, Ibid). It seems a shame to add a criminal charge to such a nice guy.

As much as we trust audits, they rarely reveal fraud. True forensic audits are very expensive. Even the government prosecution of Sheldon Silver (Majority Leader NYS Assembly 1/2016), almost did not succeed with the jury.  The majority of fraud is discovered by accident.

So, how can you stand in the door and keep (some) corrupt money from flowing this week?

  1. Realize that all of us will commit fraud under the right circumstances. If my child needs a medical treatment and I see a way to steal from you, I will do it and worry about the consequences later. You will too. And you have no idea what personal crises are going on in your company personnel.
  2. Once you have announced to your managers that we will all steal under the right circumstances, implement protective policies to reduce and eliminate. As Ronald Reagan said so famously ‘Trust, but verify’
  3. Set a high ethical tone. People watch you turning in lunch receipts that are not believable, attempting every known device to get more expense money. Sheldon Silver chose longer routes in business plane flights to get more points on his personal account. Certainly his office staff and direct reports knew that a flight to Albany does not go through Washington  🙂

You don’t have the time and money to catch fraud this week, but you probably can prevent it.

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A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

Whenever there is a deficit, we look at the budget for places to cut – less paper, less copies, less postage. The sad result is that you can’t mail anything for the next two months but the agency still fails. What can leaders do?

Non Profit Costs Are Labor Costs – Non profits all share a common feature – Most of their costs are labor costs. Non Profit budgets are made up of various human services. Those are provided by people that we pay. Non Profits are not selling postage stamps. You can cut the postage budget 100% and it still won’t solve a cash problem. 70% or more of a typical non profit budget is labor costs.

You won’t like this next part, but try one or more cost cuttings from this list.

  • Replace Low Quality Staff – Find staff who have been at the agency for a long time and have become mean and inflexible. They also tend to make better wages and benefits. Everyone is scared of them because they seem irreplaceable. Replace them. You will help staff morale and cut costs.

In one situation, the staff member was traded to four different managers because she was mean, was paid more than others, and played favorites. She informed one supervisor that she couldn’t be fired. The director felt like a lion tamer trying to get the job done. The result – the staff member left, income statement improved,  and the program never felt the loss.

  • Review Job Descriptions – Over time, job descriptions don’t change but regulations change, clients change, and technology changes. Carefully review jobs to see if you need to make significant changes and cut labor costs.

When you look around, everyone is busy. Ask each person for a list of their activities. Your goal is to find people who are being paid at a high level for a simple job that can be done at a lower cost.

A program director should not start stuffing envelopes after they have extra hours when their program funding and clients are cut. The task is needed, but not at that labor pay rate. Perhaps that director can add on another program to direct and save the cost of a 2nd position.

For example, our agency built an Excel report weekly for the bank deposit. Changing the accounting system removed that step which saved 4 hours of labor per week and audit costs at the end of the year.  Sadly, this was not apparent – and the accountant started to stuff and address invoice envelopes to fill the time.

 

  • Capture Lost Minutes – Are you paying for 4 minutes for a staff who arrives 2 minutes late every day and also leaves two minutes early? If you buy a time clock with biometrics, and pay only for the actual time for 60 staff who cut those corners, – its $1,000 a month that you can cut from labor costs.

 

  • Leverage Technology – Finally, are you using technology to reduce labor costs? Banks are using ATMs instead of tellers. Grocery stores are converting to self checkout. Non profits have two areas where technology helps.

Use technology on agency activities not related to your direct program services. Start bill paying online with controls, start payroll and tax reporting, human resource documents, etc. The annual cost of the change is cheaper than the annual cost of a staff member to perform these jobs.

Also, look for ways to assist appropriate direct program services with technology. In one program, each staff member was given an ipad. The observations were made and stored directly so that no clerk was involved to maintain paper files. The new system also allowed easy review of previous reports. One staff position was cut from the budget.

 

Conclusion:

The reason we don’t cut costs is that it’s easier to take $100 out of the postage budget than to release someone from the staff. Leading an agency has difficult moments.  We got into these positions to help the group of people within our mission with special services that will change their lives. When the budget to do that program is in danger, it’s the top and difficult priority of leadership to protect them.

If you want One Minute TurnArounds by email, please sign up.

GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

If you direct a non-profit, then expecting payments from government is likely to be a dreaded, constant feeling. Payments from government are guaranteed to be slow. Government demands quality services and expects that the non profit will float the costs until the public payment machine wheezes into action. You can’t follow up and call on every late government payment. Save your energy for the payments in danger.

How do you decide which payments are truly at risk? How can you save your time for the payments most likely to disappear?

Determine Average Payment Speed
Each agency has its own payment speed. When you have time on a snowy day, look at the last 10 payments from each agency to your bank and calculate an average payment lag after the request for reimbursement is sent. For example, you send the invoice and notice that the agency typically issues payment 23 days after receiving the invoice.  Now you have a realistic expectation of when money arrives. Ignore any collection attempts before that average payment day. You likely will not get the money, use some of your precious time, and annoy your agency contacts.

FollowUp Late Payments of Contracts in Progress
On the day after your calculated average payment day, decide if any payments for contracts in progress are missing. Also look at payments and make sure that they match the invoices that you sent. Start a planned series of followups for any money missing. If the payment is late because of office vacations or layoffs, call weekly and ask to be at the head of the processing line. Ask about the new expected payment day.  This is likely to be the only collection that is needed for money that normally arrives on time and just had an unexpected late payment.

Followup New Contracts
The greater risk is with new contracts. You may not be familiar with the contract process and mistakes are more likely to happen on all sides. Costs mount quickly as soon as services start. If the paperwork is lost or shuffling between offices, you could give an interest free loan to the government for months to come unless you keep following up. You need a daily campaign to claim what you have already earned in services provided. This is the area to place most of your collection energy.

Start the new campaign a week before services are to start. It’s not ethical for government to expect services and still not have essential legal papers prepared. Write down the names and dates of everyone to whom you speak and the topic of the call.  Keep copies of all paperwork in one place for easy reference. This has to be organized as a campaign. One or two calls are unlikely to solve the blockage.  Build relationships, memorize secretary names. In moments of non cooperation, find the name of the supervisor and look carefully at the agency website. You will be surprised at the effectiveness of persistence.

Conclusion
You have constructed an Accounts Receivable Schedule for Government. You have decided to ignore many late payments. You have set your collection dates as the day after the average payment day for existing contracts and 7 days before a new contract starts to operate. You will increase the speed of payments and use less energy.

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A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.