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October 2018
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Welcome aboard
Garry Bartecki
Garry Bartecki

No, not a typo. I am not welcoming you aboard my seagoing vessel. I am suggesting a method to improve your operations, better plan for the future and a way to prepare for your transition out of the business. And again, this is one of my “Don’t spend a lot but get a LOT” strategies.

Based on my experience every privately owned business could use an outside board to oversee business operations, review financial metrics that measure and compare performance, assist with strategic decisions such as Cap X transactions, financing the business, potential acquisitions and in general discuss the future of the industry. In addition, every board would follow up on action plans created at prior meetings to learn how management actions are meeting company goals.

To get maximum benefit from an outside board I support including a mix of members both inside and outside of your industry to get a broad perspective of changes happening across the economic spectrum. And it is extremely important to not get a lot of “YES” people on the board. What you need are business executives who will tell you like it is, explain how they see the market moving, express changes they see coming in terms of technology and the IofT, and have business acumen to understand your metrics and the decision making process.

What you may want to avoid is adding to the board people who you are engaging the normal course of running your business. If you are doing business with them they will be reluctant to question your decisions for fear of losing your business.

Manufactures, warehouse and logistic C-level personnel, wholesale or retail sales operations. These could be current customers or maybe not. Your goal with this type of group is to understand industry and customer needs and the adjustments required to meet them.

Your corporate attorney would also be a good member. They understand the board process, can assist with the agenda and help resolve issues that may have legal implications. Corporate attorney’s represent a large number of business clients and thus have input and experience in many types of business transactions. I always want them there and normally they will tell it like it is.

Other attendees at the meeting will be the president of the company (whether they own shares or not), the shareholders, the CFO, the COO and the sales manager for parts of the meeting. Outside guests could also be included as requested by management or the board. For example, your banker may be requested to discuss your credit lines or potential changes because of a business transaction your company in contemplating.

So there you are…. two outsiders, your attorney, the C-level company personnel and guests as necessary. Five or six members. The chairman sets the agenda after discussions with the board members and the C-level team and follows up on open items from previous meeting. Minutes of the meeting are formalized and forwarded to each member within a couple of weeks post meeting.

Normally two meetings a year seem to work. Lay out the dates to plan the current year, review results mid-year and have a clear idea where you stand close to year end. A meeting in Q4 (late Oct or early Nov) lets you see results through Q3, plan for year end, and plan for next year. A Q2 meeting (April) lets you review finalized annual results and allows for changes required for the balance of the current year. You can, of course, adjust the schedule to fit your needs. Some of you may need a third meeting depending on what is going on in terms of the life cycle of your business.

Data needed for such meetings would include industry data to compare results against. The MHEDA DiSC report works well for this purpose whether you participated in the report or not. Both the AED Cost of Doing Business and the ARA Cost of Doing Business reports add perspective to the discussions. Economic and specific industry forecasts help with the decision making process. Year end and current internal financial statements including supporting schedules, including budgets are a necessity. Of course, participating in the MHEDA report which spells out the participants results against the report, provide a list of agenda items for discussion.

Since we are dealing with the material handling business there are two or three items I concentrate keeping track of.

  • The estimated OLV of my rental assets
  • The age of my floor plan items
  • The balance available on my operating and equipment lines
  • Cap X requirements….both maintenance and growth
  • My borrowing base
  • Pre-tax profits and absorption rate
  • EBITDA (to measure debt service capability)

So, let’s make it eight things that keep me up at night. Most of which have to do with cash flow to cover debt service, covenant coverage, absorption rate and other balance sheet nightmares that make our industry so exciting. I just hate to manage this type of business worrying about financing issues. It is much more pleasant to know you have adequate cash flow to cover debt service and operating expenses without having to worry about it.

Creating an outside board will help address both balance sheet and cash flow considerations because C-level personnel will need to justify both budgets and results to someone other than the owner. Probably a good idea.

The times I have encountered an outside board environment it provided benefits well in excess of the cost to the program. Give it some thought.

Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail to contact Garry.