Newsletter

Global Cash Flow

Some fourteen years ago I wrote an article for the Silver Fox Advisor’s Newsletter which was titled “Global Cash Flow”. At the time Global Cash Flow was a well-used buzzword in the Banking Industry as the 2008 real estate crisis was unfolding.

Today the phrase Global Cash Flow remains extremely important in the financial industry as lenders analyze the ability of borrowers to be able to make their debt payments, not only on the loan that is being underwritten at the time but on all the borrower’s business as well as personal debt.

Why is Global Cash Flow important to a lender? Because conventional lenders (financial institutions) are typically cash-flow lenders not collateral lenders. Cash flow lenders want to be paid back from a borrower’s cash flow, not by having to rely on taking back collateral and selling it.

What does “Global Cash Flow” mean, and how does it affect you and your banking relationship?

Let’s start by defining the term “Global Cash Flow”. We all know what “Cash” is, and “Cash Flow” is the movement of money into and out of a company. When more comes in than goes out, it is said to be a positive cash flow. A negative cash flow is when more goes out than comes in. Webster defines “Global” as “of, relating to, or applying to a whole”. Thus, when added all together, one could conclude that “Global Cash Flow” means Cash moving into and out of a company’s whole span of ownership or common bond [e.g., the company’s owner(s), subsidiaries, related companies, and common ownership entities (foreign and/or domestic).  In fact, throw in everything else related to the company and its owner(s)!].

Now, for the second part of the question: “How does “Global Cash Flow” affect you and your banking relationship”? This needs to be looked at from two points of view.

First of all, if you presently have an open credit facility with a bank and are providing financial statements, as part of a reporting covenant in a loan agreement, then do not be surprised if you are asked to also provide financial statements and tax returns for that real estate holding company you and your spouse own that has some rental properties in it or perhaps your son’s or daughter’s college condo. Or, you may be asked to provide the financial statement and tax returns on your spouse’s professional practice, that may be totally unrelated to the borrowing entity, but the spouse is a guarantor on the credit facility, so your overall “Global Cash Flow” coming in or going out may be affected. If this requested information is not provided and the bank’s credit analysts cannot prove you have cash flow to cover your debt payment(s) by at least a 1.25 or even a higher ratio like 1.35, then there is a good chance your loan will be classified, even if you are making your monthly payments on time. If your loan does become classified, then you banker will become your newest problem employee. You will get calls from your banker asking you numerous questions because he or she has to complete an “Action Plan” to get your loan upgraded to a “Pass Credit” status. This could take a while (6 months or a year). If it looks as if the upgrade process could take longer, you may be directed to do the difficult task of  “Moving Your Loan” to another lender. I truly do not think that most bankers even realize what they are saying when they issue that edict to you. If all the banks are playing from the same handbook, how it is possible to move your loan?

The second situation comes into play if you are looking for a new loan. You will be asked to provide all the borrowing entities’ financials and tax returns as well as the guarantors’ personal financials and tax returns. But oh wait! The credit analysts spot that you or one of the guarantors is receiving rental property income that was reported on a Schedule E form. The sirens start to blare and phone calls and e-mails begin to fly. The banker will tell you to produce copies of the financial statements and tax returns for that real estate entity you own. Once you provide that information, you will likely get another request. Can we also get copies of all the documents on the loans outstanding in that real estate entity? You provide those copies, and then guess what? We also need this, and then that, and it seems endless, all provided in order to work up the “Global Cash Flow”.  If that magical 1.25 or 1.35 debt service coverage cannot be achieved, you will likely not get the new loan.

Do not take any of this personally, or you may take up drinking. Also, do not think you are in the driver’s seat because you have a good loan to collateral value. In today’s environment that is a given, or you will not even be afforded the opportunity to provide the financial information. It is all about cash flow.

One thing that makes all of this so difficult to understand is if the bankers and the regulators would take a minute and think about what they are doing, they just might think about adding a step to the process. All this “Global Cash Flow” analysis that is being done is based on historical data. I know that history repeats itself, but let’s be a little creative and pro-active and do some forecasting of revenues and expenses and get to see how much is going to actually be available to make future payments.

Written by Richard T. Hendee, a Silver Fox Advisors

Seller Development Means Organization Success

Seller: any individual generating revenue by offering a product or service against payment while providing the complete “Customer Experience Journey” with titles such as Sales Executive, Field Application Engineer, Business Development Manager, Customer Experience Agent, Key Account Manager, Marketer, etc…


In this article, we will explore the importance of investing in sellers, the benefits it brings to organizations, and the strategies companies can adopt to nurture and enhance the skills of their sellers.

Last February, McKinsey released a report about “Transforming human capital into a competitive advantage”. This extensive study sampled worldwide, from large enterprises to small businesses in many industries, demonstrates how important human capital remains.

In today’s competitive business landscape, organizations are constantly seeking ways to gain a competitive edge. While several factors contribute to a company’s success, one aspect that often gets overlooked is investing in the development of its sellers.


The quote, “Organizations that invest in their sellers, prioritize their development, and invest in their skills are the ones that come out on top.” encapsulates the essence of the relationship between seller development and organizational success.


Building a Solid Foundation
Investing in sellers entails more than simply hiring competent individuals. It involves creating a culture of continuous learning and development within the organization. By prioritizing seller development, companies lay a solid foundation for success.
Training programs, workshops, and mentorship opportunities allow sellers to acquire the necessary skills and knowledge to excel in their roles. These investments enhance their selling capabilities and boost their confidence and motivation, improving performance.


Fostering Customer Relationships
Sellers are at the forefront of customer interactions and instrumental in nurturing strong relationships. When organizations invest in their sellers, they empower them to establish meaningful connections with customers.
Sellers with in-depth product knowledge, excellent communication skills, and a customer-centric mindset can better understand customer needs and provide tailored solutions.
It leads to enhanced customer satisfaction, increased loyalty, and, ultimately, more significant revenue for the organization.


Adaptability and Innovation
The business landscape constantly evolves, driven by technological advancements and changing customer demands.
By investing in seller development, organizations equip their sellers with the agility and adaptability required to thrive in this dynamic environment.
Continuous training helps sellers stay updated with industry trends, emerging technologies, and sales techniques, allowing them to adapt their approach accordingly.
Furthermore, investing in sellers’ skill development encourages innovation, as they are more likely to identify new opportunities, propose creative solutions, and drive growth for the organization.


Retaining Top Talent
Investing in sellers improves performance and increases employee satisfaction and retention. When organizations demonstrate a commitment to the growth and development of their sellers, it fosters a sense of loyalty and engagement.
Doing so makes sellers feel valued and supported, leading to higher job satisfaction, and reduced turnover rates.
Furthermore, investing in development programs allows organizations to identify high-potential sellers and provide them with growth opportunities, thereby nurturing a pool of talented individuals who can contribute to the organization’s long-term success.


Strategies for Seller Development
To effectively invest in seller development, organizations can implement several strategies. Firstly, they can design comprehensive training programs that cover product knowledge, sales techniques, customer relationship management, and other relevant skills.
These programs can be delivered through in-person workshops, online modules, and mentorship opportunities.
Additionally, organizations can establish a culture of continuous learning by encouraging sellers to participate in industry conferences, webinars, and professional development courses.

Conclusion
Investing in seller development is a strategic move that enables organizations to gain a competitive advantage and achieve long-term success.
By prioritizing the growth and skills of their sellers, companies can build a solid foundation, foster strong customer relationships, adapt to changing market conditions, and retain top talent.
To stay ahead in today’s fast-paced business environment, organizations must recognize sellers’ crucial role and provide them with the necessary resources and opportunities to thrive.
Only by investing in their sellers can organizations position themselves as industry leaders and emerge victorious in the marketplace.


Post covid, buyers’ technics and communication protocol changed. Was your sales team trained for today’s reality?


If you have questions or would like a more in-depth conversation on sales training, please contact:

Michel Privé
713-907-6310
mprive@silverfox.org


How to Overcome Your Addiction to Control with the Serenity Method (or: How to Attain Peace of Mind with the Serenity Method)

One of my primary goals in life is serenity, or as some like to put it, peace of mind. I view such a mental state as key to lasting happiness.

Serenity comes down to two words: control and acceptance.

It can take years of maturing through failures and pain to realize that we are not in control of very much.

  • We can’t control people.
  • We can’t control the business environment, the economy, or the government.
  • We can’t control traffic, late airplanes, or a global pandemic.

When we want to control the uncontrollable, we experience frustration and disappointment, which left unattended, can easily progress to anger, or even rage.

To gain peace of mind, we need to relinquish control and learn to accept things as they are.

In most cases, you cannot FIX people and only have a minor influence on other things/situations.

Breaking this habit of control is the single biggest breakthrough I have witnessed in people I have coached.

Here’s how to break that habit in 3 simple steps:

1. Commit to not trying to control people and things

2. Carry a copy of the serenity prayer with you.

God grant me the serenity
To accept the things I cannot change;
Courage to change the things I can
And the wisdom to know the difference

3. When you notice yourself becoming agitated with people or circumstances, PAUSE. Pull out the serenity prayer, read it, and think about it.

The most challenging part is recognizing the urge to control and remembering to do it.

As you practice this simple method, you’ll catch yourself earlier and earlier.

Soon, it will become your new way of being. You will be free of the need to control the uncontrollable.

And you can enjoy the rewards that come with peace of mind.

About Howard Rambin

Howard Rambin co-founded Moody Rambin, a successful Houston-based full-service commercial real estate firm. He holds a B.A degree in Accounting and Finance Southern Methodist University and was a founder of Keep Houston Beautiful. As a firm believer in Otto Bismarck’s observation that “Only a fool learns from their own mistakes. The wise man learns from others” his latest venture is to share the wisdom he gained through years of hard-won experience by coaching business owners.

To learn more about Howard, visit his website at:

https://rambin-coachandconfidant.com

You can download his e-book, The Serenity Method, here:

 https://rambin-coachandconfidant.com/blog/serenity-method-ebook-opt-in-offer

Working Capital Management

All business owners are very aware of the importance of cash in effectively managing a business. Thus, the often-used expression “that cash is king.” This cash is created from the management of working capital. For the purposes of this monograph, we consider working capital to be the total of accounts receivable, inventory, and accounts payable. If a business owner cannot control these three activities, he cannot manage his cash and therefore there is almost certainty that the business will fail. This monograph will provide some thoughts on how to manage working capital effectively. We review important concepts for each of the three elements of working capital. At the conclusion we will provide a tool to develop a comprehensive measurement of working capital management. For each of the three elements, important analytical measurement tools will also be provided.

INVENTORY—Many service businesses and virtually every manufacturing business owns inventory. For a service business it might be elements that are consumed in providing the service. But to effectively operate the business is required to maintain an inventory of these consumables. Often these consumables might be items such as paper, notebooks, and any supply that is regularly consumed or provided the customer. In manufacturing, inventory includes a combination of finished goods, the end product manufactured, and raw material, the parts that are consumed to produce the finished goods.

In managing these inventories there are certain critical elements that must be considered:

  1. Identification of the inventory element—each item in inventory should have a part number;
  2. Acquisition cost—the cost of acquiring the item. The value of the inventory is the multiplication of the quantity on hand times the acquisition cost. There are many procedures available to value inventory items. The simplest approach would be to calculate the average value of the item by averaging the different purchase prices;
  3. Reporting the consumption of the inventory when the goods or service is provided to the customer;
  4. Maintenance of a perpetual inventory of the items– In a simple business this inventory can be maintained manually. In more complex business it should be maintained in a computer. Ideally if computerized the consumption of the product will update the perpetual inventory. When items are acquired the inventory for the specific part is increased and when the service or sale is completed the inventory of the specific part is decreased;
  5. Create a report of total inventory value. At least monthly the business should calculate the value of its inventory by multiplying the quantity on hand times the acquisition cost;
  6. Periodically, the business should count its inventory and verify that the value of the inventory counted agrees with the value maintained in its accounting system. We would count inventory at least quarterly;
  7. When reviewing the inventory become cognizant of parts that haven’t moved recently or perhaps are no longer required. Parts with excess inventory and obsolete need to be removed.

The simplest way to measure inventory is to calculate the days of inventory on hand. This calculation can be developed by dividing the cost of sales for the month by the number of days in the month. This value can be calculated by developing the daily average of cost of goods sold. Then compare the value of the inventory on hand with this daily average value.  In this formula the numerator is the ending value of inventory and the denominator is the daily average of cost of goods sold. The result is the days inventory on hand. The lower this value the more efficient the inventory is being managed. To effectively manage the inventory, it is important to make this calculation at least monthly and chart the result indicating the progress the business is making in managing this asset. The lower the number of days in inventory, the business gains valuable insight into its cash management as the purchase of inventory consumes cash.

RECEIVABLES—When a customer purchases a product or service, the selling business creates a receivable. This receivable remains outstanding until the customer pays the seller. In many businesses, the buyer uses a credit card when purchasing. In this case, the time to convert the sale into cash can be accelerated to a few days or perhaps even hours. However, many items can be purchased where the buyer and seller have agreed that payment will occur in a specified period of days.  In the US this convention requires the seller to make payment 30 days from the invoice date. This discussion will deal mainly with this type of transaction.

In effectively managing receivables the following should be considered.

  1. Invoice the customer quickly after the sale is made and record the sale in the record of the accounts receivable;
  2. On the invoice clearly identify the payment terms that have been negotiated with the buyer;
  3. Understand the procedures your customer uses in paying your invoice. This information can be critical if it is necessary to track the customer’s payment;
  4. Develop a method to track the customers’ payment timeliness. If the invoice becomes past due a maximum of five days call the customer and inquire when the payment will be made;
  5. If payments become more than 30 days past due, develop mechanisms to demand payment.

Develop a method to track the effectiveness of receivable management. A simple method is to calculate days sales receivable. This first step is to develop the average daily sales in a month. Then compare this daily average with the outstanding receivables balance at month end. In this formula, the total receivables are in the numerator and the average daily sales are in the denominator. The lower this number, the faster the business is converting sales into cash. If payment terms are 30 days for example, this calculated ratio should be close to 30 days.

PAYABLES—In order to operate a business, the company needs to buy the various materials, services and personnel it needs to run the business. The company’s vendors send invoices from which the company pays the vendor. Customer invoices generally require payment in 30 days. In effectively managing payables the following should be considered.

  1. In negotiating a purchase include in the negotiation the payment terms to the vendor;
  2. These negotiations should attempt to develop the longest possible payment terms without the vendor increasing its purchase price;
  3. If possible, the company should pay its vendors in the same frequency in which its customers settle their receivables. For example, if the company calculates its receivable turnover as 30 days. It should pay its vendors in 30 days. Following this practice balances the receivable balance with the payable balance;
  4. Maintain a listing of all outstanding invoices;
  5. Don’t pay vendors until you are convinced the vendor has forwarded goods and services that meet the agreed upon standards that have been negotiated with the vendor;
  6. Review this outstanding list of payables to ensure that no invoices are outstanding and past due.

CONSOLIDATED WORKING CAPITAL MANAGEMENT—In the company’s accounting system there should be ledgers that track inventory balances by part number, outstanding receivables by customer, and outstanding payables by vendor.  From an analytical perspective, inventory and accounts receivables are assets while payables are liabilities. Working capital is the net result of adding these three elements. The lower the overall balance of working capital, the more effective the company is managing its working capital. One easy measure to review the effectiveness of working capital management is to calculate the ratio between sales and working capital. In this ratio, the numerator is net working capital while the denominator is sales. The lower this ratio percentage the better the company is managing its working capital. This is the fourth measurement tool developed in this monograph.

We have discussed:

  1. A measurement of inventory days outstanding;
  2. A technique to measure outstanding receivables day outstanding;
  3. There a no easy measurement of payables;
  4. But its management is included in the calculation of the ratio of sales to working capital.

In reviewing this subject, remember there is a direct linkage between working capital and cash management. Effective working capital management requires frequent reviews for excess inventory, past due receivables and payables that have not been paid according to the agreed upon payment terms. Companies that avoid these issues are generally the best run companies because they have mastered the management of working capital and as a result have maximized the management of their cash.

CHALLENGES TODAY’S WORKFORCE PRESENTS TO SMALL AND MID-SIZE BUSINESS OWNERS

by

Richard T. Hendee, a Silver Fox Advisor

Over the course of the last few months more and more of my clients have been working through some challenges in their experiences with today’s workforce. The issues are plentiful and range across the entire spectrum of the human resources function business owners deal with every day.

The first issue is trying to find qualified individuals to fill open positions. Experience is always front and center, but I am hearing that business owners are willing to take the time to train new incoming employees if the individual demonstrates some good potential.

Having good potential is the second issue. A number of today’s job seekers want to be hired for positions that meet their schedules and not necessarily that of the employer. If the business is a retail customer facing business with typically retail hours of operation, scheduling work shifts is challenging enough for a business owner, but adding the element of working around the hours the employee wants to work can be difficult.

Working from home vs actually coming into a business environment is also an issue- employers are facing. The COVID working from home experience became a real way of life for many workers, and some simply do not want to go back to pre-COVID going-into-the-office schedules. This is again a real issue for retail business owners faced with meeting specific retail hours of operation.

The pay schedules have completely gone off the rails. Yes, most employers want their employees to earn a livable wage, but the cost of living has increased so much in the post-COVID world that wages have increased dramatically as well. Payroll is the largest expenses for most employers, and when these higher costs can’t be passed on to the employer’s clients, then something has to give. Usually what happens is the employers try to find ways to reduce or streamline processes whereby they don’t need as many employees to get the work done while still maintaining quality service and product delivery.

Fast track advancement is another issue. Many of today’s potential employees want to be rewarded with frequent promotions working their way to that corner office with titles that look good to their friends, and in some cases, help pad their resumes. Typically, advancements in small and mid-size businesses do not happen on a short timeframe. When you work in the small business arena, employees frequently wear many hats and specific specialized positions simply do not exist.

So, what does all this mean to today’s small to mid-size business owners. Here’s what I have been telling my clients:

  1. Take a step back and assess your business needs and how you can do what your business does with the work force that is available today. This might include shifting to more part-timers and fewer full-time employees. If today’s workers want to work according to their schedules, you might have to adjust your work flows as well.
  2. Consider college students as a potential employee pool. College students typically are looking for extra money to pay for their education or for expenses that might not be covered by college loan programs or scholarship awards. In addition, these college students might be another answer to finding part-time workers.
  3. You also may want to look at seniors for potential part-time workers. Many seniors today want something more than staying at home if they are healthy and want to get out and meet people and stay active. Further, many seniors today often need to supplement their incomes to cover the increasing cost of living or health care. In addition, seniors may not need any training and may even offer some great suggestions from what they learned or experienced in their former careers.
  4. Review your job descriptions and make sure that they include things today’s work force is seeking: Things like we provided on-the job training and advancement opportunities. Then, you have to make sure that you actually make those things available and are not just using fluff words.
  5. Develop a reward system that recognizes good work when it happens, and reward your employees at that moment with gift cards, cash and praise for a job well done.
  6. Identify tasks that could be done remotely or even outsourced. This could lessen the number of employees you may need or the number of employees you need to be in the business’ facilities.
  7. Explore your business’ hours of operation and actual traffic flows. You might find out that you only have one or two customers that come into the business the first few hours or the last few hours the business is open. Just because you have been open from 7:00 until 7:00 for 20 years, you may not need to be open those hours any more due to customer life style changes over time.
  8. Review your pay levels for each job in your business, and for those jobs that could be done from home consider having different pay scale for in- the-office work vs remote work. Think about the fact that people working from home might consider a lesser salary because they do not have to pay to commute, to park their vehicle, or for meals out, child care, etc.

These are a few outside-the-box suggestions, and I am sure if you put your mind to it, you can come up with even more creative ways to meet today’s workplace challenges, because that is what entrepreneurs have been doing for years.

 About the author: Richard Hendee is a Silver Fox Advisor and the owner of Horizon Associates, Inc. Richard is known as “The Business Advisor”. He has been providing business advisor, consulting and mentoring services to small and mid-sizes businesses for more than 45 years. Richard can be reached at 832.437.3089 or by e-mail at richard.horizon@mindspring.com

Should you hire during a recession?

By Michel Privé, a Silver Fox Advisor

 

Recession is top of mind for every business today.

Business owners will need their “A game” during this period of change. 

What is your plan?

Aggressively chase growth or play defense? 

Well, here are some strategies that are easy to implement and worth considering.

-1- Play defense or try to dodge the crisis or bury your head in the sand? 

Stay close to your customers and manage your cash flow. At the same time, you are putting yourself in a position where you hope your customers, your markets will not vanish, and your staff will stay.

-2- Play offense. You never want to waste a crisis! 

This crisis will end and lead to a new normal. With good planning and a solid strategy, your business can be more robust and ready to thrive in the new normal. 

My advice: keep control of your destiny. Use this period of changes to align your business direction:

– Invest in your clients. Support them in their new product development efforts and continue to work with them when the crisis ends. Become their partners. Offer them solutions they need now to help them gain market share.

– Actively hunt for business from your competitors (the ones who play defense). 

– Develop solutions that meet prospects’ and clients’ needs now and in the future. 

– Be present and over-communicate.

You will need a strong sales leader on your team to help guide your efforts to strengthen the company during this transformation and the negative impact of the recession. 

Do you have this leader today on your staff? 

If you don’t, you need to hire one. Don’t waste this crisis.

One more gut punch to add: Inflation has negatively affected hiring.

Many employers have struggled to fill vacancies for months, and the strain is starting to show. 

Half of the small and medium businesses across the country reported they have open jobs they cannot fill.

Hiring the right sales leader is mission-critical.

Start answering these questions before the hiring process:

  1. What’s the biggest sales-related issue you need to solve now?
  2. What does your business specifically need right now? What about a few months or two years from now?
  3. What are the market and your customers telling you?
  4. What stage is your business – where do you plan to take it in the next few weeks, months, and years?
  5. What do the next two years look like?

Make sure a candidate’s expertise and experience fill in the gaps of what your team lacks but desperately needs.

Additionally, look for a sales leader who:

  1. Is aligned with your mission and the work that needs to be done to succeed
  2. Is resilient
  3. Puts people first
  4. Holds themselves accountable
  5. Doesn’t crack under pressure
  6. Is multi-dimensional
  7. Has solid emotional intelligence
  8. Knows how to hire, onboard, support, and retain their team
  9. Demonstrates GWC (Gets It, Wants It, Capable of delivering It).

 Once you know why you need to hire a new sales leader and the attributes you are looking for, you don’t want to fall into a common trap: 

I have seen too many business owners with unrealistic expectations when hiring a new sales leader. It can lead them to look for a unicorn – the perfect candidate.

Unrealistic criteria turn their hiring initiatives into a chase for the mystical white unicorn with red wings. 

A long, costly hiring process has several adverse outcomes. It unnecessarily puts added pressure on existing staff, and worse – lost opportunity costs accumulate rapidly.

Since this is not a zero-sum game – speed matters.

 • Adjust candidate skills and experience criteria to focus on the most critical responsibilities of the job
 • Focus on potential instead of capabilities or experience. 
 • Match or raise the compensation package to compete with current market demands
 • Do not limit the search to your industry and reach out to those outside your industry or geographic area

Now you are ready to recruit, and candidates are getting interviewed. Be prepared to make a fast move. To help you to select the sales leader and to allow you to make an offer within 24 hours, always use a hiring scorecard during interviews to help your recruiting team to make a fast decision.

A hiring scorecard is an unbiased system that helps you evaluate candidates based on the standards and qualifications you need.
When you create your hiring scorecard, list all the traits and experiences you want your ideal hire to have (see above). Scorecards will be your “North Star” to ensure you stay focused during your interviews. It will help you evaluate and score each candidate on how well they meet those qualifications.
Scorecards also allow you to ask deeper, probing questions to dig well below the surface during your interviews.
They are a powerful visual to help you uncover which candidates make the most sense for your business, not just those who look good on paper or interview well.

Using a hiring scorecard narrows down exactly what your business is expecting. And because you’re vetting each candidate thoroughly using an unbiased system, you’ll naturally reduce your hiring time.

If you say to yourself:
“All this advice on hiring and finding the right candidate is excellent, but I can’t wait. 
This crisis will weaken us, and we will die if we don’t act now”. 
Or: 
“I want to keep my current sales leader on staff,  but I know her or his skills are not strong enough in change management or simply not aggressive enough for this required transformation.”

I Need Help Now!

Consider using a fractional VP of sales with the right skills and experience in leading or organizing a sales team during changing times. A fractional VP of Sales can help business owners grow sales in a cost-efficient low-risk way. They have been through multiple change management events during their careers. They know what to do and typically achieve desired outcomes quickly.

They are expert sales advisors and practitioners and can address challenges across the spectrum of activities related to revenue generation, including finding your next sales leader or grooming your current leader. 

Interview and select them for the mission described above. Check if they will be a good match for the work to be completed and your company culture. 

If you like your current sales leader’s attitude and potential, you might not need to hire a new one. 

Let the fractional VP of sales lead and execute the required changes. Upon completing the repositioning and transformations of your business, your leader will have learned a lot and be able to take over and let the fractional VP of sales go to save another company.

Never waste a crisis.

If you have questions or would like a more in-depth conversation on sales strategies and tactics in a fast pace changing environment, please contact:

Michel Privé
713-907-6310
mprive@silverfox.org

Power Consumers in Texas and the US Faced the Impacts of Natural Gas Price volatility, Weather Issues, and Demand Uncertainty in 2022.

A winter of price discontent becomes a season of uncertainty

As Texas and the United States approached the fourth quarter of 2022, there was every reason to believe that power consumers were facing a winter of discontent over prices. The country had just sweated through one of the hottest summers on record, demand was surging while output was declining, and domestically produced liquefied natural gas was being shipped to Europe as Russia’s invasion of Ukraine disrupted global energy markets. So it was no surprise that conventional wisdom concluded prices that were already surging in 2022 would show no sign of letting up entering 2023.

So much for conventional wisdom.

Benchmark Henry Hub natural gas prices – a major driver of electricity costs, especially in Texas– have plunged. Storage levels in both the United States and Europe have grown and now provide a comfortable supply cushion. Despite a December freeze, moderate winter temperatures – January got off to its warmest start in almost 15 years, analysts said – have kept demand in check.

Does that mean the record natural gas price swings that defined 2022 have evaporated? Not at all. “It’s looking really volatile here to start the year,” said one analyst. And there are expectations that power prices in Texas may climb even higher this winter. So the state’s businesses and organizations should consider collaborating with an energy procurement partner to help them navigate the uncertainty, save money, and keep their operations productive and efficient.

Record high gas prices marked 2022

The wholesale Henry Hub natural gas spot price averaged about $6.45 per million British thermal units last year, according to the Energy Information Administration, the highest annual mark since 2008 and 53 percent higher than in 2021. On a daily basis, prices were all over the map, ranging from a peak in August of $9.85 per million British thermal units to a low of $3.46 per million Btu in November. But they started creeping up in December as heating demands grew.

The price performance was both consistent with and in contrast to EIA’s previous outlook. In early 2022, the agency forecast that Henry Hub natural gas prices would average about $9 per million British thermal units in the fourth quarter of 2022 before retreating to roughly $6 in 2023 as production recovered. It scaled back those estimates in October, to about $6 per Btu in the fourth quarter of 2022 and holding that level in Q1 of 2023. Still, that was sharply higher than the $3.32/MMBtu in 2021 and $1.86/MMBtu in 2020.

The higher-price expectations weren’t without reason. Prices had begun to creep higher in early 2021, when a brutal winter storm battered Texas and Oklahoma, causing a spike in February. They kept rising through October as the economy strengthened and caused an increase in demand, which hit an annual high of 2.97 billion cubic feet per day. The cold weather extended into spring 2022, pushing prices even higher, leading to below-normal injections of gas into storage in advance of the approaching heating season, and gas already in storage had been withdrawn to meet winter demand. Drillers were raising production, but available supply was still lagging.

Demand was showing no signed of abating, either. In January 2023, EIA said it expected consumption of natural gas settle at an average of 88.7 bcf/d EIA last year – a new high and up 6 percent from 2021 – and that power sector usage would average 33.3 bcf/d, another record and 8 percent over 2021. Meanwhile, the agency noted that in 2022, liquified natural gas exports continued to climb and storage inventories were at historic lows.

High prices don’t materialize, but volatility still reigns

But as the United States entered a new year, the market had begun to shift dramatically. From mid-December 2022 to mid-January 2023, prices plunged 48 percent and, according to Rystad Energy, demand could hit record lows if abnormally high winter temperatures continue. On top of that, production is poised to outstrip demand: EIA projected natural gas output will grow 2.4 percent this year, to a daily a record daily average of 100.3 billion cubic feet per day, while demand remains basically flat. Others, including East Daley Analytics and RBN Energy, forecast an even higher output increase.

The falling costs of natural gas, combined in part with the expansion of new renewable energy, were projected to drop wholesale U.S power prices by 10 to 15 percent this year – though customers likely won’t see benefits in 2023. On top of that, storage, which had fallen to 12 to 13 percent below the trailing five-year average, was on the upswing in both the United States and Europe. In the EU, it was at 83 percent of capacity, up sharply from the year-ago level of 51 percent. In the United States, inventories rose by 11 billion cubic feet in mid-January – the Wall Street Journal called that “unheard of” – bringing domestic stockpiles to just 1.4 percent under the five-year average and “erasing any doubt that there will be enough of the fuel to get through the winter.”

Price volatility is not likely to abate in 2023, but isn’t expected to reach the record levels of last year. “It’s looking really volatile here to start the year,” said Steve Blair of Marex North America. “We have a lot of factors at play – production, LNG – but ultimately weather will rule.” He added: “If we get more Arctic blasts, the direction of prices could change quickly. If we don’t, and production holds up, we could see new tests to the downside.” For its part, EIA forecast Henry Hub prices will rise about $5 in late January and stay around there for the last three quarters of the year behind falling temperatures and the restart of operations at the Freeport LNG terminal. But it, too, hedged all bets, saying there is a possibility of lower prices.

State of Play In Texas

Despite the plunging cost of natural gas, power prices in Texas are high and, said an economist with the Federal Reserve Bank of Dallas, could go even higher this winter. Part of this is due to the state’s reliance on gas-fired power – 44 percent of generation compared with 37 percent nationally. Exports are expected to jump with the start of the Freeport facility, and three other Gulf Coast terminals are being built. “Those exports,” the Fed’s Jesse Thompson said, “are likely to keep pressuring higher the amount Texans will pay for heat and power through the winter.”

Additionally, there are the ongoing effects of Winter Storm Uri, which knocked out electricity for 5.2 million homes and businesses in 2021 – the large majority of them in Texas. The state’s power customers are still picking up the cost for the grid’s collapse after the legislature approved about $7 billion in ratepayer-backed bonds to deal with the financial repercussions of the disaster.

Also related to the storm, the Electric Reliability Council of Texas has since been managing grid operations more conservatively. ERCOT now wants plants to be online and available when needed. That translates to paying generators a set price to operate, no matter what the conditions. The result? “Conservative operations add costs,” a top energy lawyer told The Texas Tribune.

Your Market Ally

It goes without saying that in a market like this, where the only certainty is uncertainty, businesses and organizations can use an ally. Albireo Energy is your partner in not only managing price and supply volatility, but also in finding opportunities that others might not see.

Albireo Energy is the largest independent smart buildings provider in the United States, and its energy procurement division is a Top 10 utility management firm in its own right, handling over 30,000 commercial and industrial accounts.

We have helped customers country get deals that have them paying less than half of the local utility default service rates, and have helped secure those rates for the longer term. Thousands of businesses have enjoyed lower energy costs by enrolling their electric and natural gas accounts with us. We group these accounts together into large energy aggregations, and those businesses get the same purchasing power as major energy users. Enrolling is simple and effective and provides a long-term solution for your energy purchasing while delivering the peace of mind that comes with knowing your energy expenses are being professionally managed.

For larger businesses, Albireo’s proprietary reverse auction software, supplier management portal, and market-leading supplier network drive sophisticated and proven results. That’s why heavy users such as data centers and blue chip global brands trust Albireo to help them navigate the complexity and risk of energy purchasing.

Any organization that is feeling the pain of high energy bills, or is concerned about where prices will go next, should reach out to Albireo Energy to see what our business-class service can achieve for them. Through intelligent buying patterns, you can enjoy the advantages of structured and longer-term purchases. And even if you are locked into good rates, you can still benefit from an account review. Even beyond matters of rates, Albireo employs thousands of professionals who can help your buildings reduce usage and improve comfort and efficiency through leading-edge technology.

If any conclusion can be drawn from the market today it’s this: No one really knows what will happen next, and price volatility is not going away. But you can still be prepared. Albireo Energy is here to help you do it.

References
Dallas Morning News – Electric bills are likely to keep climbing, Dallas Fed economist says
Energy Information Administration – Average Cost of wholesale U.S. natural gas in 20922 highest since 2008
Energy Information Administration – U.S. natural gas consumption forecast to increase in all sectors in 2022
Energy Information Administration – Short Term Energy Outlook
Energy Information Administration – Natural Gas Weekly Update
Financial Post – More oil and gas volatility in 2023 to keep producers focused on shareholder returns
Natural Gas Intelligence – Average Henry Hub Natural Gas Spot Price Shoots to 14-Year High in 2022
Natural Gas Intelligence – Volatility Laces 223 Natural Gas Price Outlook Amid Robust Production, Demand Uncertainty
Natural Gas Intelligence – Henry Hub Natural Gas in Q$ Likely to Average $9, with Brent $98, EIA Says
Natural Gas Intelligence – EIA slashes Natural Gas Price Forecast, But Potential Remains for Winter Spikes
Natural Gas Intelligence – Henry Hub Natural Gas in 4Q Likely to Average $9, with Brent $98, Says EIA
Reuters – U..S. natgas price volatility hit record highs in 2022
Reuters – U.S. natgas output, demand hit record highs in 2022
Texas Tribune – Texans face skyrocketing home energy bills as the state exports more natural gas than ever
Wall Street Journal – Made in the U.S.A.: Natural gas prices
Wall Street Journal – It’s Basically Spring for the Natural Gas Market

Annual Sales Goals

SALES TEAM members are heavy lifters contributing to the success of their companies.

Therefore, it makes sense to prioritize an annual sales goal process as part of your business practice. These meetings offer a time to share the Company’s VISION MISSION, allowing TEAM members to know where they stand within the organization’s established benchmarked goals and objectives. And know if they are at Performance Standards, Below or a High Achiever.

Also of importance, it offers time to review the salespeople’s motivational desires they strive for before management cast out annual goal expectations.

This meeting process helps assure sales and management personnel on reaching obtainable revenue numbers they forecast and expect to achieve that alight with Company goals.

Need a process? Here’s a summary outline you may find helpful.

  1. Start with Group Messaging
    • Communicate the company’s current year-end (YE) results compared to goals. What went right and opportunities to capitalize on.
    • Review of the company’s longer-term Vision and Career Opportunities that avail. Include in careers, “What’s in it For Them” talk, facilitates retention plans and helps to attract the right people into the organization.
  2. One-on-One Meeting
    • Review with each salesperson their current YE sales revenue and personal income results.  Start now, project out to YE if necessary.
    • Compare their results with the goals forecasted to be achieved for this year.
    • Discuss in detail the metric measurements, controllable Key Performance Indicators (KPIs) that produced their sales revenues and income results.
    • Take time to define what they feel went well and what they would do differently to improve results.
    • Compare their contribution standing to the Company’s resulting Performance.
    • Goal Setting.  Discuss the income the salesperson wants to make for the coming year.  Tie the KPI metrics required to produce the level of sales revenue to generate their income goal.
    • Explore how sure they feel about the metrics required, and HOW they expect to accomplish.  Establish that both of you agree the sales revenues, KPIs, and income goals are obtainable.  If you or the salesperson feel they are too high or low, collaborate to reach a number you both believe is real.  It’s KEY for the salesperson and manager to agree on the income to sales revenue ratio and KIPs required are achievable.
    • Understand WHY the Income Goal is meaningful to them.  Knowing how they plan to spend their income provides a self-managing motivational tool.
    • Career Opportunity.  We all want to BE learning and growing.  Ask the salesperson what they want as the next step in their career.  Review with them the company’s projected growth and the Performance Standards representing this opportunity.
  3. Probe the commitment level they have for their goal ambitions.
    • Remember, people do things for their own reasons.  Knowing these reasons helps manage the process through the year.
  4. Support.  What will they need from you?  Be clear.  Is it training in sales, leads generation, product and/or service, greater depth on knowing the customers’ business, other?  Get specific.
    • Be sure to understand what THEY personally feel vs. what you feel they need.
    • This feedback clarifies what you are committing to when providing the needed support requirements.
  5. Check-Ins.  Standardize a Report Form they fill out to review Results Expected/Result Achieved.
    • Establish a time, weekly preferred.  If a new salesperson, daily.
    • Review successes and/or variances in the metric numbers and discuss strategy and tactic adjustment requirements of KPIs to achieve desired results.
    • If continually missing their metric KPIs, find out if their financial income goal priorities changed.
  • Note
    • This is a TEAM effort.  It’s important to stick with regular review meetings the salesperson and manager establish. 
    • Write and keep accurate notes of conversation agreements and commitments.
    • KPI metrics are controllable factors, must do requirements to achieve desired goals. 
    • Numbers can be readjusted during the year if they are off track.

If you have questions or would like a more in-depth conversation on framing a goal setting session, contact:

Jim Iden, CPC

713-927-3564

jiden@silverfox.org

Cheers and Happy Holidays!

How to Sell Your Business to a Buyer You Like

By: Herb Kalman, a Silver Fox Advisor

June’s job out of college was with a distribution company selling small widgets.  After a few years, thinking that there was more money in large widgets, June approached a large widget manufacturing company to represent their products in her market area. 

Twenty-five years later, with the business thriving, June started to receive inquiries regarding her interest in selling the business or selling part of the business.  She had discussions with prospective buyers, investors, and with colleagues who had sold their businesses.  The common theme of the sellers was regret.  Regret about selling too soon.  Regret about the changes to the company.  Regret about how the employees were treated.

The Employee Stock Ownership Plan (“ESOP”) was designed to allow business owners to sell stock indirectly to their employees by using a trust.  The initial ESOP occurred in 1956 in which the Profit-Sharing Plan of Peninsula Newspaper in San Francisco received a private letter ruling allowing it to acquire the Company’s stock from Company shareholders.  ESOPs are now part of ERISA and provide tax benefits for sellers in some cases and for the Company owned by the ESOP. 

June learned about ESOPs from her financial planner.  After consulting with the financial planner and her CPA, she decided to sell one-third of her stock to an ESOP.  Because the corporation was a “C-Corp,” she was able to defer taxes on the gain on the sale to the ESOP. 

June investigated the sale of 100% of the company to the ESOP with her team of a financial planner and CPA and an investment banker that specializes in ESOP transactions.  However, June decided to sell a minority interest and continue to grow the business.  Key managers have stepped up and assumed more responsibility.  The Company’s productivity has improved, and the annual value has been increasing.

June is now considering a second transaction to increase the ownership of the ESOP.  She has complete flexibility as to the number of shares she wishes to sell.  This transaction could be 100% of her remaining shares, which would make the ESOP own 100%.  Or it could be a smaller number of shares so that she could remain in control.  Or she could transfer control to the ESOP.

June has recently received calls from colleagues seeking an exit to learn about her ESOP experience.  She answers that she is selling the business to people she likes and has no regret of her decision.

Increasing the Pricing of Your Products and Services

Over the past several years I have written articles regarding product and service pricing and have made recommendations to my clients regarding the pricing of their products and services. These suggestions were based on my belief and experience that most businesses can pass on at least a 2 to 3 percentage price increase in their respective products and services to their customers each year and should do so annually at the same point in time, say January 1st.

Few customers if any will even notice that small an increase. If you are not doing this type of systematic pricing increase, your bottom-line profitability is going to suffer because the costs associated with running your business are increasing. If you don’t increase your pricing, you are simply absorbing the increases in your expenses (wages, insurance, rent, utilities, taxes, office supplies, advertising, and, the list goes on).  

An Example

One example I like to use to demonstrate this point is to take any year-end income statement for your business and add 3.0% to your revenue figure; see what that does to your gross profit margin and your net profit margin. Most business owners I ask to do that exercise will come back and tell me they are amazed, and they all wish they would have done something like that sooner.

What prompted me to write this article about increasing pricing for products and services is the present inflationary market we are experiencing. With the last published inflation rate of 9.1% (a 40 plus year high), if you are not increasing your product and service pricing right now by at least 9.1% your bottom line will be greatly affected in a negative way for 2022. I would almost guarantee you that you are experiencing increases in almost every expense item, like the ones I mentioned earlier.

Avoid the Wait

Further, if you wait until next year to increase your pricing, we could be operating in a much different business environment, perhaps a recession, and then it will be very difficult to pass product and service pricing on to your customers.

I recently heard of one business that decided to do a 25.0% increase in its service fee and add a 5.0% monthly fuel surcharge to its pricing, and it experienced had no questions or complaints.

I know and understand passing a double-digit price increase on to your customers might not be possible in every situation due to differences in competitive environments. But I would guess you could pass the inflationary rate of 9.1% on to your customers as a fair increase.

Lastly, I also know and understand that by increasing your product and service pricing you might feel like you are adding to the inflationary spiral. However, if you don’t increase your pricing as stated above, you will be simply absorbing the increases yourself in the goods and services that you have to pay. A simple saying, I have stated over the years might apply here: “Do you want to pay your mortgage payment, or do you want to pay someone else’s”?

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