​Look in the mirror. You are the one to blame for the problems!

In most every turnaround engagement of a business, where I have been hired to solve the problems to make the company profitable again, the largest problem is a weak executive or executives on the management team. At the beginning of each engagement, my first task is always to interview each member of the management team to determine if he or she is qualified to do their respective job. When I was finished with the interviews, it usually is obvious which manager(s) are in over their head in their position, or do not have the skills or ability to do their job successfully.

Once I determine who the weakest manager on the team is, I start working in their functional area looking for the “low hanging fruit” to immediately grow sales, reduce expenses, and improve cash flow, etc.

I was hired by the owner of a $30 million-dollar engineering company to turn the company around. His complaint was the larger the company grew, the more money it lost. This is a very common statement by owners that hire me.

I started the engagement by interviewing the management team and determined that the CFO was the weakest manager on the team. Even when I was interviewing the CFO, he hinted that the job had grown too big for him. He had started working for the company when the sales were $3 million at one location. Now the company was ten times larger in sales and had eight offices.

I reviewed the financial statements and found many errors. There were no operating budgets as part of the income statements. The income statements showed a substantial increase in the payroll tax expense which was caused by penalties due to late payments to the IRS for several months. The monthly financial package had been issued late each of the last eight months as well as being inaccurate. The bank statements had not been reconciled for the past six months.

The auto insurance expense was materially higher in the current year than in the prior two years. When I reviewed the problem, I found that the CFO had overpaid the premiums by $90,000. The problem occurred because when the company traded in a company van, due to high mileage, and acquired a new van. The insurance company added the new van to the policy but had not removed the old trade-in van. This problem had continued during the prior three years. I was able to recover the total premium over-payment once I documented the issue to the insurance carrier.

After the first three days on the job, it was clear to me that the CFO was over his head and one of the main reasons the company was not profitable. I met with the owner to discuss my findings for the first week ($120,000 in savings) and told him my plan to replace the CFO immediately with a more qualified financial manager for the company. The owner’s comment was that he knew that the CFO was his weakest manager, he just did not know how big of a problem the CFO was to the company! I told the owner that the CFO was clearly a problem affecting the company’s profitability, but not the biggest problem. The biggest problem is his boss for keeping a weak manager on his management team. I was referring to him, the guy the owner sees every morning when he looks in the mirror.

If you own a business or manage a department, you should evaluate the quality of your team at least twice a year. If you have a weak manager or team member, you owe it to the rest of your employees to replace him or her with a qualified employee who can perform all the responsibilities of the position. 

Most companies have four functional areas; sales, operations, management information systems (“MIS”), and finance. The owner should view those four functions as legs on a chair. If one of the four legs of the chair is weak, the whole chair falls. If one of the four managers on the management team is weak, the whole company will eventually fail!