Take A Look In The Mirror

A client recently asked me to help her analyze the overall state of her company. Her decision to conduct this productivity audit was prompted by an unexpected personal opportunity that would take her out of the country for the better part of a year. For continuity and efficiency reasons, and to make sure her managers had their marching orders throughout her absence, my client wanted to make sure she was “doing things” as well as possible.

conducting a business productivity audit

As it turns out, she wasn’t. She was doing great, no doubt; but she wasn’t operating as efficiently and productively as possible. The subject business, a relatively straightforward, mom-and-pop, retail operation, had just shy of two million dollars of annual sales. Yet this successful enterprise was formally divided among six (yes, six!) separate corporate entities. Inexplicably, each entity’s performance was tracked on a different fiscal year. Over its ten year existence, this family of companies had bootstrapped itself to sustainable success. It had built a strong, loyal community around its brand and it had managed to stick to its business and social principles along the way.

But unfortunately, it had never developed a consistent, reliable budgeting process. It had never developed the policies and processes through which to measure its success and identify its problems. And, as it turns out, it had never considered its burdensome overall corporate structure. When I tried to find out how they got to six separate companies for a business this size, I discovered that the multiple entities had been set up to facilitate future outside investment that was never actually needed (thanks to my client’s self-made success). Nonetheless, these entities continued to file and pay taxes separately, continued to demand strict corporate record-keeping, and continued to stymie any effort to answer the simple question, “how are we doing?” Perhaps most important, this more-complicated-than-necessary superstructure made regular, company-wide forecasting and reporting all but impossible.

In the early days of a startup company, decisions are made out of excitement, optimism, and big dreams. But the sometimes ad hoc decisions made early on in your company’s life can have lasting consequences unless they’re revisited. As your business matures and its needs change, the decisions you made early on may no longer be appropriate and could actually be impairing your productivity. The good news is that they’re not set in stone.

Andrew LevinsonAbout The Guest Author: Andrew R. Levinson, is the Managing Director of Riverside Strategic Advisors LLC, a business consulting and commercial mediation firm located in New York. He can be reached at andrew@riversidestrategicadvisors.com.


5 Comments Take A Look In The Mirror

  1. Justin Knechtel

    Andrew, this is a great story. I’ve seen some funny things in small businesses, but this one really takes the cake. Any update on how much leaner it is after you guys dove in? I’m curious just how common this type of situation is.


  2. Andrew

    Now that the owner is on extended leave, the folks who most appreciate the new, leaner structure are the managers they left behind. One thing’s for sure: tax season will be much easier for everyone, including their accountant (from whom I got a very big thank you). But more important, the managers are now able to get a better view of the company and its performance, as a whole. With the managers better informed, the owner (who of course remains involved from overseas) has more reliable data and a truer picture of her company’s continued success.

  3. Scott M.

    Wow — it’s very interesting that no one ever asked about the different entities that were set up. You’d think that a professional (CPA, CFO, etc.) would have talked with them about it. Then again, I’ve seen some pretty bizarre things, too! So I guess it shouldn’t be too much of a surprise…

    Great piece!

    Scott M.
    Virtual CFO

  4. Jack Speranza

    I echo the comments made by Scott M. — why didn’t her accountant or attorney flag this for action long before you were called onto the scene? I hope it wasn’t because the multiple entities (and the billable activity associated with maintaining them) created a dis-incentive for these professionals to counsel the best course of action for their client…

    Perhaps I am getting too cynical in my more advanced age 😉


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