TCOR – Total Cost of Risk

At a recent professional CFO forum, I was intrigued by a concept on risk that might be of interest to Entrepreneurs.

Instead of the traditional view of insurance, Dana Coates of United Agencies Insurance (www.tsbic.com) presented a concept of TCOR – Total Cost of Risk.

TCOR includes all of the costs associated with managing a company’s financial risks. TCOR equals risk management administration costs, retained losses related to deductibles and uncovered claims, insurance premiums, and outside service such as consulting, training, sub-contracting.

Viewed from this perspective, Entrepreneurs can appreciate the cost of managing financial risks. It is not just about insurance premiums!

Ravi Patel

www.patelCFOservices.com

Revenue per Employee

A useful macro measure for tracking productivity is Revenue per Employee.

Revenue per Employee can be tracked on a monthly basis by dividing the rolling 12-month revenues by the average number of employees during the month.

Monitoring the trend line demonstrates your efforts in increasing revenues per employee. More importantly, Entrepreneurs should compare the Revenue per Employee measure for their company to the standard in their industry. Is your company above average in your industry?

Ravi Patel

www.patelCFOservices.com

Encourage Healthy Conflict

Entrepreneurs are often used to acting decisively, but often make their decisions alone without differing viewpoints. This works while the company is in the infancy stage, but prudent, consistent management requires input from various points of view before arriving at decisions.

Encouraging healthy conflict in your organization where diverse opinions and alternatives are sought is a recipe for long term success. Optimal decisions are made when multiple facets of an issue are considered by analyzing pros and cons. Surrounding yourself with people who mostly say “yes” to the Entrepreneur/CEO is not a healthy situation.

Productive conflict is healthy and beneficial for soliciting diverse thinking on issues. Arriving at decisions after considering all sides is optimal for a growing organization. Obviously, once the decision is made everyone needs to be aligned behind the decision. Conflict then is not healthy.

Ravi Patel

www.patelCFOservices.com

Expense Avoidance

During tough economic times, Entrepreneurs often focus on expense reduction programs. While this is necessary, have you thought about expense avoidance?

Expense reduction programs focus on reducing a certain percent of the total amount. How about starting with the question whether the expense is necessary at all?

Expense avoidance reviews start with a “zero-base” and systematically determine if expenses are necessary in the first place.

Complementing expense avoidance analyses with reduction programs might yield optimal results for Entrepreneurs.

Ravi Patel

www.patelCFOservices.com

Setting Pay for Performance Payouts

If Entrepreneurs buy into the concept of Pay for Performance (P4P), then setting payouts under the program become important.

While establishing the payout levels for a P4P Program, three factors need to be taken into account – expected performance level, level of difficulty, and likelihood of achievement.

Based these factors, one can set up a matrix to develop different payout levels. For example, for a level of performance at 75%, with a level of difficulty of 80% and likelihood of achievement of 85%, the payout level could be 70% of target P4P bonus.

If you are interested in setting up a P4P program for your company, please contact Patel CFO Services at www.patelCFOservices.com

Ravi Patel

www.patelCFOservices.com

Informational Lunches

H9ving lunches outside office premises to meet and discuss issues with clients, vendors or other business associates is common for Entrepreneurs.

Entrepreneurs, have you considered having regular informational lunches in-house to communicate with employees? Periodic lunches with employees on an informal basis where employees bring their own lunch and sit around a table to discuss business issues may be beneficial.

You might even want to have a speaker share information on general informational topics or have focused presentations on technical subjects. Limit such sessions to no more than 20-25 minutes.

Periodic, informal yet informational lunches with employees may serve as a powerful communication medium for Entrepreneurs.

Ravi Patel

www.patelCFOservices.com

Variable Financial Management

Many articles and books have been written about the needs of different types of management as the company grows from a start up to a mature level. Start ups require more of an entrepreneurial spirit  that might not work in a well-seasoned, stable growth company.

Similarly, financial management has to be variable to the needs of the organization at different stages during the growth and aging of the company.

 As your organization grows are you aware of what stage it is at and what type of financial management is necessary? Blending the financial management needs with the general management requirements of the company at different points in the growth curve of a company is crucial.

As a savvy CEO, are you paying attention to this? What are you doing to influence the changes required in the financial management of your company?

Ravi Patel

www.patelCFOservices

“Rallying” Purpose of your Company

While having a Mission Statement is important to a company, how do you inspire your employees to rally around a single purpose?

Entrepreneurs should develop a simple but effective purpose of the organization that can be used to rally and inspire employees at all levels of your company.

The purpose should convey the primary mission of your company and motivate your employees to feel like they are contributing to that purpose. The purpose should be one that is easy to understand but not monetary in nature. Focusing on a simple theme is a great communication tool that binds together your Mission and daily activities of employees at all levels.

Ravi Patel

www.patelCFOservices.com