Natural Entrepreneur: Financial Lessons for CEO's: 7, 8

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Financial Lessons for CEO's: 7 & 8

More on the top ten lessons for CEO's and business owners

by Helen Dutton, A vision of Your Own, LLC, Weare, NH

Understanding and managing debt and assets is key to business success. In previous issues, I outlined and began to explain the first six of my Top 10 List of financial “must knows” for non-financial CEO’s and business owners. Today we continue.

7. Manage your physical and intellectual assets.

It does not take long for a growing company to accumulate a host of physical and intellectual business assets. These assets are an essential part of your business operation, and in the case of intellectual assets, may represent the very basis on which your business was founded. Given this, it is important to account for and track these properties.

Your physical assets are easy to recognize as they are usually defined or identified by their own physical parameters. Tracking them can be as simple as attaching identification tags and maintaining a spreadsheet. This is also the least costly method. It is especially easy to lose track of electronic equipment, so tracking these assets is an important step in keeping them from “walking out the door”.

Engraved, pre-numbered tags are readily available for purchase and can be applied to most surfaces. If you take steps to record the tag numbers along with a description of each asset, and its location, upkeep of the information in the spreadsheet should be a trivial task. Physical assets are much easier to protect if you start early.

Intellectual property, including patents, trademarks, copyrights, and trade secrets, share many of the characteristics associated with physical assets. That is, intellectual property can be bought, sold, licensed, exchanged, or gratuitously given away like other forms of property. Further, the intellectual property owner has the right to prevent the unauthorized use or sale of the property. However, these resources are intangible and cannot be defined by their physical characteristics.

As an intangible, it is obviously not possible to assign and attach a numbered tag to your asset for easy recording. In many cases, you may not be sure of the possible intellectual assets in hand or how best to define or describe them. Ultimately, the burden is on you to create a discernible expression of your intellectual property that you can patent, trademark, etc. An experienced patent and trademark attorney is best able to advise you on this and can work with you to develop the records you will need to protect them.

Establishing your intellectual property rights varies in difficulty and expense. A patent is the most costly and lengthy to attain; protection for trade secrets, copyrights and trademarks (including service marks) is relatively easy when acted upon proactively. Some countries grant rights to the first person to use a mark in the course of business, while others grant rights to the first person to obtain a registration in that country. One of my clients, a software company, had virtually no intellectual property program in place. In order to provide the required documentation for their first mark use, hours were spent combing through records at considerable cost in time and money. Lesson learned? Establish early in your business the intellectual property you want to protect.

If you choose to meet with an Intellectual Property attorney, plan to spend a few hours discussing your products, marketing materials, and development and/or manufacturing process. Learn what is protect-able and develop a plan that details what to protect and what is not worth the time or expense. Share this plan with your marketing and R&D employees to ensure they are cognizant of your intellectual property and your company’s protection policy. (For more information, there are some interesting articles at: http://usinfo.state.gov/products/pubs/intelprp/ ).

8. Shorten your payback period on projects and debt.

How successful you are in pursuing a new project or approving a capital business purchase, depends, in part, on the economic risks over the payback period. Possible economic risks include a downturn in the general economy, loss of a key employee, or a natural event. A conservative plan would involve cutting your payback period in half and then evaluating the viability of the opportunity under that new schedule.

Many, if not most technology businesses have experienced a situation where they chose to develop a new, highly innovative product, which looked like a real winner. The R&D team, including a world-renowned design firm, was confident of the design. Time-to-market was critical and achieving their milestones would ensure financial success provided the sales estimates were reasonable and, perhaps, conservative. Success required they simply meet their dates.

Well, many of you might be familiar with the common outcome - target dates are missed, the market window narrows or is closed, and the project or purchase becomes a financial loss. Being prepared, by objectively assessing your potential costs and managing your risks can go a long way toward avoiding these situations. Below are several exercises that I have found helpful when presented with a decision.

When considering financial return of a project, estimate what happens when the project is delayed. For example, if you believe the project development timetable to be 15 months, what happens if it is 18 months? 24 months? Our economy moves at astonishing rates; you simply cannot afford delays.

Continue your projections and increase the cost. If you believe it will cost $2 million, what happens if it costs $2.5? $3 million? If you combine a time delay and a cost increase, try to determine that point where there is no positive return.

Gather sales and cost estimates from all sources – both negative and positive. Every company has a naysayer. If this person can give you reasons, listen and include their concerns in the forecast.

No one can predict catastrophic ice storms, three hurricanes within a month, the loss or sickness of a key employee or terrorist attacks. One natural occurrence (or a very unnatural one) can turn your business in a matter of hours. Always look at worst-case scenarios. I’m certainly not suggesting that you run your business always expecting the worst but the more educated and prepared you are, the more you can improve your chances of increased success, and lower your stress in the process.

Helen Dutton is a national business coach for fast growing and entrepreneurial businesses and principal of A Vision of Your Own, LLC in Weare, NH. She can be reached at (603)529-2345 or Helen@avisionofyourown.com. Also, visit www.avisionofyourown.com

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