Mike is a financial guru. He has 42 years experience as
a Director, Advisor, financial consultant, CFO and auditor, and has helped companies
deal with issues involving corporate oversight, financial management, financial
reporting, forecasting and financing. His financial tools have been adopted
by hundreds of companies, and he speaks frequently on finance and entrepreneurship. Click
here to read some of his comments.
Why is my sales manager protecting
deadbeats?
"I'm supposed to be in charge of collecting receivables, but
every time I lean on a slow customer my sales manager has a fit. The
CEO just says, 'Work it out somehow.' Any advice?"
Mike: Before you can solve this problem, you need to
get at the root cause. The most likely explanation is that your sales
manager is nervous about his team's relationships with customers. Are
there problems with product quality? Are customers being encouraged to
buy more than they need or can afford? Are his sales reps writing what
are essentially phantom deals ("pay us whenever you feel like it")?
Unhappy customers tend to pay their bills slowly, and it's possible that
your sales manager doesn't want the rest of the company to hear the bad
news.
However, the other possibility is that you really are being too
aggressive in your collection efforts. For instance, your customers may
need several months to cut a check for year-end license renewals or support
contracts because the paperwork gets bogged down in purchasing and legal
reviews. Rather than nag your slow-paying customers, ask them if there's
anything you can do to fast-track your invoices. You might be surprised
by what they tell you.
Is a two-year non-compete too long?
"A potential investor group is interested in putting money
into my company, but first they want several key employees to sign
two-year non-compete agreements. At most, my employees say they'll
sign six-month agreements. Is there a standard term for these contracts?"
Mike: The short answer is no. You and the investor
group must determine what's a reasonable time period to protect the company
if your employees leave to join a competitor. Unless there's a very unusual
competitive situation, a two year non-compete seems excessive. Six months
is more common in my experience, and you should remember that there are
some states--such as California--where non-compete agreements are rarely
enforced.
If your investors won't accept six months protection, you should talk
with them about other ways to persuade key employees to stick around.
For instance, you might offer stock options with a minimum two-year vesting
period. Or you could pay a hefty deferred retention bonus (which might
have to come out of your pocket, if you want to make the deal work).
However, you should also be prepared to walk away from these investors
if they refuse to be flexible on this one issue. They may not be the
right partners to help you grow your company.
What kind of 'overhead' can we charge?
"Is there a formal accounting definition of 'costs' for cost-plus
contracts? My CEO wants me to pile on all kinds of overhead expenses
that I feel are excessive, but I don't have any contrary evidence for
a more conservative approach."
Mike: Typically, these rules are spelled out in the
bidding process or in standard contracts, to minimize this kind of ambiguity.
(For instance, most government contracts cover the cost-plus question
in pretty painful detail.) I'm guessing that you're dealing with an inexperienced
or lazy customer who failed to provide guidelines up front. Your problem
isn't just with your CEO--you also have a potential here for a fight
with the customer over getting paid for any poorly-defined overhead costs.
Your best bet at this point is to refer back to the cost calculations
you presented in your original bid, which presumably the customer approved.
When you send an invoice, report your overhead expenses with as much
detail as possible, and describe these line items using the same language
as the bid or contract. This approach should minimize disputes with both
your CEO and the customer.
Is an advisory board member liable for damages?
"I'm on the advisory board of a startup, and I get paid a few
dollars a year for occasional meetings and phone consultations. I know
the company provides errors and omissions insurance for the regular
board of directors. Is this something I should insist on?"
Mike: Even if the company implements an idea of yours
that harms someone, you and your fellow advisory board members have no
authority to make corporate decisions. That's something only the directors
and officers of the company can do, so they're the only people with any
legal or financial exposure. You're in the clear.
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