New metrics to Define Financial Performance?
In the tumult surrounding the 3D maelstrom (Debt Ceiling, Downgrading and Deficit) of several weeks ago, you may have missed another chilling corporate finance update on the relentless pursuit of performance metrics that extol the sunshine while you’re in the heart of darkness. Yes, there may be some economic value for certain of these metrics, but they’re dangerous barometers of realizable value and highly misleading as to future achievements of tangible operating profits and free cash flow.
Most of us recall the “eyeball counting” that preceded the Dot-Com-Bomb and those certain “Signs of the Apocalypse”, as when your cab driver is telling you what stocks you should buy.
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As we’ve all learned, most of life’s lessons don’t travel in a neat formation accompanied by bugles and cavalry. They arrive filthy and unkempt, prominent in the mess we’ve made around our foxhole. These lessons are typically the offspring of hubris, naivete and ignorance … or from overlooking the land mines hidden beneath our feet.
Every Tuesday, we’ll share valuable and practical leadership tips and tools to help you BE a better leader so you can BECOME a better leader. Remember … you won’t BECOME a better leader until you start BEING a better leader … implementing NOW the changes necessary to adopt the proven strategies of successful leaders. You might start by building on the communication matrix and making sure you’re defending the castle to get done what only you can do. Make some time so you’re thinking past today.
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You probably know someone, don’t you, who is a star performer who believes that her achievements go unrewarded? If so, you probably also know an underachiever who gets more than he deserves. Is there any greater disincentive to the high performer than knowing that under-performance seems to be equally rewarded?
I’ve talked about the value of incentives before, but it keeps coming to mind as I talk to senior executives who don’t seem to have spent any time at all considering whether their incentive plans are working as intended … or whether they need to be revised.
In some ways, it reminds me of the comment that Bloomberg attributed to Barney Frank, chairman of the House Financial Services Committee, during the $20 billion bonus scandals during the 2008-2009 financial meltdown. According to Bloomberg, this was his comment …
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“Financial Adrenaline” is a term we love around here because it reflects our commitment to help you turbocharge your business with practical tips and techniques to improve free cash flow, the lifeblood of business. As a further extension of our Financial Adrenaline program, we’re going to share a new Business Finance Tidbit every Wednesday specifically for those business executives who don’t have a finance background.
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We’ve kinda been on a Warren Buffett tear lately, and last week I encouraged you to read his recent 2010 Annual Report to Berkshire Hathaway shareholders.
I want to plant another seed this week about an often misunderstood concept: DEPRECIATIONIn accounting, an expense recorded to allocate a tangible asset's cost over its useful life. Because depreciation is a non-cash expense, it increases free cash flow while decreasing reported earning. It is used in accounting to try to match the expense of an asset to the income that the asset helps the company earn. For example, if a company buys a piece of equipment for $1 million and expects it to have a useful life of 10 years, it will be depreciated over 10 years. Every accounting year, the company will expense $100,000 (assuming straight-line depreciation), which will be matched with the money that the equipment helps to make each year.. (You can see the definition by placing your cursor over the term.)
Today, let’s just think about it in terms of EBITDA. In Does EBITDA Bury Its Own Dead?, I wrote about the perils of treating EBITDA as a placeholder for cash flow, and Buffett couldn’t agree more.
In his Annual Letter to Shareholders, 2002, Buffet describes
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As we’ve all learned, most of life’s lessons don’t travel in a neat formation accompanied by bugles and cavalry. They arrive filthy and unkempt, prominent in the mess we’ve made around our foxhole. These lessons are typically the offspring of hubris, naivete and ignorance … or from overlooking the land mines hidden beneath our feet.
Every Tuesday, we’ll share valuable and practical leadership tips and tools to help you BE a better leader so you can BECOME a better leader. Remember … you won’t BECOME a better leader until you start BEING a better leader … implementing NOW the changes necessary to adopt the proven strategies of successful leaders.
Does your company have a Vision/Mission Statement that you clearly understand … and everyone knows who it belongs to?
Last week, we talked about the proposition that Leadership = Communication and I shared a communication matrix with you to help you start on a Communication Action Plan.
There’s no doubt that communication stands tall in the pantheon of business leadership, and we all probably think we’re pretty good at it. We can walk, talk, dictate, speak and even string together a few intelligible sentences. We chat with our troops, talk to our customers and vendors, share information with colleagues and shareholders. We hold meetings, BBQ’s and off-sites to talk about what’s going on. We’re all pretty good at communication . . . or are we?
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“Financial Adrenaline” is a term we love around here because it reflects our commitment to help you turbocharge your business with practical tips and techniques to improve free cash flow, the lifeblood of business. As a further extension of our Financial Adrenaline program, we’re going to share a new Business Finance Tip every Wednesday specifically for those business executives who don’t have a finance background.
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In most fields of endeavor, the more we learn, the more we realize how much we have to learn. It’s certainly no different in the world of business finance, so for non-finance executives, it’s never easy to know where to start.
So, why not jump into the deep end right now by reading Warren Buffett’s Letter to Berkshire Hathaway shareholders for 2010. The publication of Berkshire Hathaway’s annual report is closely watched in the national media, as well as in homes and offices across the country … and for good reason.
I’ve said before that leaders don’t have the luxury of confining their interests to just a few things.
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Carjack. Nail clippers. Teeter-totter. Tweezers. Nutcracker. Scissors.What do these devices all have in common? They create leverage, a simple but extraordinary tool that increases the force, or power, of everything to which it is applied. Engineers use a more complicated definition, but you and I know that we need at least three things to create leverage: a 1] fulcrum, or pivot point; 2] a load being moved; and 3] a force that’s moving it.
Leverage is even more invaluable following the 30-month economic drought. Most of us have fewer resources to solve the problems we face every day … so we need as much leverage as we can muster to turbocharge the resources at our command. Financial leverage may be one the first things that come to mind, but I want to talk about at least five pivot points that can drive your business to greater success.
Are you doing everything possible to leverage your time?
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Every Thursday, I’m sharing a new Personal Productivity Tip to help you get more done. Each Productivity Tip is a remarkably simple tool or concept that can be quickly implemented to make a real difference in your personal productivity. When you apply many of them together, they’ll make a big difference in improving productivity, achieving accountability and staying focused on the things that matter the most in your life.
You may want to check out some of the posts in this Productivity series, including the the value of checklists; the importance of getting rid of the crappy stuff; the nightmare of the cluttered mind; and the 4 Do-or-Die Principles to Drive your Personal Productivity System.
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Last week, we dusted off the S.M.A.R.T acronym as a reminder that we need to create Specific, Measurable, Agreed Upon, Realistic and Trackable objectives if we want to create a business culture with accountability as its centerpiece. There is simply no shortcut or substitute for the genuine productivity that results when we SET CLEAR EXPECTATIONS.
Today, we’re going to dust off another “oldie but goodie” but one that many of you may have never encountered. I learned it from some old consulting hands and while it’s often used in a formal chart of “who’s supposed to be doing what,” it’s a valuable accountability tool to evaluate the roles and responsibilities of individuals involved in any kind of team effort or project.
In short, it qualifies team members based on their expected level of contribution to a project. Different parties play different roles to get things done, and this tool provides a simple, effective and consistent way to achieve project accountability by evaluating who’s doing what.
By spending just a little time to establish these roles, you will once again, SET CLEAR EXPECTATIONS. It will also help your team members understand their roles and what’s expected of them in a particular project. Read on to learn about each of these four roles.
In short, the buck stops here. This team member has ultimate accountability for accomplishing the objective. Since “if you have two bosses, you have none”,
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Over 7 Wednesdays in January and February, we’ve described 7 remarkably simple components of R.E.S.P.E.C.T. that you can apply to your everyday conduct. The ability to earn R.E.S.P.E.C.T. is a critical Leadership requirement … and we have absolute control over the actions we take to earn it. It’s also the “centerpiece of accountability“, a concept that vexes even the most astute business leaders. Since it’s impossible to be an effective leader without gaining respect, let’s devote some time and energy to learn how to give it … to get it. Are you with me?
So far in our R.E.S.P.E.C.T. series, we’ve discussed the “R”: Right on Time, Every Time, the “E“: Every call returned in 24 hours and “S“:say something nice like Mom taught us. We’ve also covered “P” = Praise more and blame less, and “E” = Easy work with. Last week we discussed “C” = Compassion. This week concludes our R.E.S.P.E.C.T. series.
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Are you sharing or hoarding information?When I began my business career in the 1970s, the word “transparency” was not in the business lexicon. You knew what you were told … and you were told what someone thought you needed to know … but it was unlikely that you’d hear much about where the company was going or your role in it. Prior to starting my own company in the early 1980′s, I can’t recall a single company-wide meeting at any of the companies where I worked … or any general discussion of the company’s performance or strategy.
What exactly is Transparency, the last letter … “T” = Transparency … in our 7 part R.E.S.P.E.C.T. series?
It doesn’t necessarily mean opening the kimono or letting everyone ramble around backstage. It doesn’t mean
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Every Thursday, I’m sharing a new Personal Productivity Tip to help you get more done. There are some remarkably simple tools and concepts that can be quickly implemented to make a real difference in your personal productivity. In combination, they can really help you stay focused on the things that matter the most in your life.
You may want to check out some of the posts in this Productivity series, including the the value of checklists; the importance of getting rid of the crappy stuff; the nightmare of the cluttered mind; and the 4 Do-or-Die Principles to Drive your Personal Productivity System.
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When I talk to executives every day, there’s hardly a conversation that doesn’t include the same 2 things: “Why aren’t I getting more done?” … and “Why aren’t my people getting more done”?
There are several simple and proven leadership tools that can save your bacon many times over. This one is kind of an “oldie but goody” so you’ve probably seen it around. If you’re saying, “that old thing again”, I’ll give you 5-1 if you can come up with something better for setting goals and objectives.
The question is … have you really used it?
As with the common cold, there’s probably no cure … but there are some things we can do to manage the symptoms.
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Welcome to Exkalibur. I’m Lary Kirchenbauer, President of Exkalibur Advisors, Inc. Please take advantage of our resources to help you build your business ... and let me know what more we can do to serve you.
Read my latest column from the NY Times affiliate, the North Bay Business Journal.
Lary has been a tremendous asset to our company. His experience and knowledge provides our young company with the type of financial and business guidance needed to facilitate our continued growth. In addition to Lary's efforts in raising capital for our company, he has assisted Multimedia Live in both extensive business planning, as well as continual ongoing monthly financial and strategy analysis of our business. I have found this to be an invaluable service.
Ken Burke, CEO, Multimedia Live, Inc.
