KEYS TO PROFITABILITY

FPPA MANAGEMENT
WORKSHOP
CHICAGO IL
SEPTEMBER 11, 2007
M.S. Ackerman & Co. LLP
Introduction
 MAXIMIZING PROFITS
– KEY CONCEPTS
– TEN STEPS TOWARDS PROFITABILITY

 MAXIMIZING ENTERPRISE VALUE

M.S. Ackerman & Co. LLP

MAXIMIZING PROFITABILITY
 VISION
 INNOVATION
 PASSION
 ATTENTION TO DETAIL
 RECOGNIZING TALENT
 UNDERSTANDING YOUR LIMITATIONS
 TAKING CALCULATED RISKS
 SHORT MEDIUM AND LONG RANGE
PLANNING
 CUSTOMER ORIENTATION
 OUTSIDE “ADVISORY” BOARD
 PAID CONSULTANTS
 TEN STEPS TOWARD PROFITABILITY
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M.S. Ackerman & Co. LLP
WORK YOUR NICHE
 SWOT ANALYSIS
 ACCENTUATE THE POSITIVE
 MINIMIZE THE NEGATIVE
 BE AGGRESSIVE WHERE YOU HAVE
THE ADVANTAGE
 VALUE ADDED SUPPLIER
 FORGE STRATEGIC ALLIANCES
WITH “FRIENDLY COMPETITORS” TO
LEVERAGE OFF OF THEIR NICHE
M.S. Ackerman & Co. LLP
SELF HELP EXERCISE #1
 WRITE DOWN TWO THINGS THAT YOUR
COMPANY DOES WELL AND TWO THINGS
THAT IT DOES POORLY
 DEVISE A STRATEGY TO SELL/MARKET
THE TWO THINGS YOU DO WELL
 COME UP WITH A PLAN TO IMPROVE OR
ELIMINATE THE TWO THINGS YOU DO
POORLY

M.S. Ackerman & Co. LLP

HIRE MANAGERS WITH
PASSION
 MANAGEMENT, MANAGEMENT,
MANAGEMENT!!!
 ONLY NATURAL LEADERS NEED APPLY
 SHOW THEM THAT YOU CARE
 LET YOUR PASSION BE CONTAGEOUS
 EMPOWER THEM TO MAKE DECISIONS
 HAVE REGULAR MEETINGS TO DISCUSS
AND EVALUATE
 INSTALL FORMALIZED PERFORMANCE
MEASUREMENT SYSTEMS
 COMMUNICATION IS THE KEY TO
SUCCESS!
M.S. Ackerman & Co. LLP
SELF HELP EXERCISE #2
 PICK A MACHINE CENTER OR PROCESS
THAT IS NOT PERFORMING UP TO
EXPECTED EFFICIENCY
 GET A FLIP CHART AND WRITE DOWN
THE EXPECTED PERFORMANCE RIGHT AT
THAT AREA
 HAVE A MANAGER (OR THE WORKERS
THEMSELVES) GRAPH THEIR PROGRESS
OR LACK THEREOF ON A DAILY BASIS

M.S. Ackerman & Co. LLP

KNOW YOUR COSTS
 KNOWING OVERALL AVERAGE COSTS
ARE FAR LESS IMPORTANT THAN
UNDERSTANDING THE INCREMENTAL
COST OF A NEW ORDER
 FOCUS ON CONTRIBUTION WHICH IS
DEFINED AS SALES PRICE LESS
VARIABLE COSTS
 LOOK AT SIGNIFICANT JOB COST
VARIANCES REGULARLY

M.S. Ackerman & Co. LLP

SELF HELP EXERCISE #3
 REVIEW THE FIVE JOBS THAT RAN
THROUGH YOUR PLANT RECENTLY WITH
THE LARGEST VARIANCES FROM THE
ESTIMATE
 STUDY THE METHODOLOGY USED IN THE
ESTIMATE AND REVIEW THE PRICING
DECISION
– GOOD DECISION, BAD PRODUCTION?
– BAD ESTIMATE?
– WRONG KIND OF BUSINESS?
 MAKE SURE THAT THE SALESMAN THE
ESTIMATOR AND OTHER KEY PERSONNEL
ARE INVOLVED IN THE MEETING
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LEAN MANUFACTURING
 REDUCES CYCLE TIMES – INCREASES
CAPACITY
 REDUCE WASTE
 ADD MORE VOLUME TO EXISTING
OVERHEAD
 LABOR AND OVERHEAD ARE A SMALLER
PERCENTAGE OF SALES
 CAN YOU FILL UP NEW CAPACITY?
 WHAT IF YOU CAN’T?

M.S. Ackerman & Co. LLP

Historical Income Statement
ABC SHEET PLANT, INC.
INCOME STATEMENT
SAMPLE INCOME STATEMENT SUITABLE FOR EXTERNAL REPORTING
For the years ended December 31,
2004 2003
% OF % OF
SALES SALES

Net Sales 10,463,000 100.00 8,110,900 100.00

Cost of goods sold 7,737,505 73.95 5,951,657 73.38

Gross Profit 2,725,495 26.05 2,159,243 26.62

Operating expenses
Shipping, delivery and warehouse 902,360 8.62 745,994 9.20
Selling 849,596 8.12 766,530 9.45
Administrative 713,662 6.82 637,635 7.86
2,465,618 23.57 2,150,159 26.51

Operating Income 259,877 2.48 9,083 0.11

Other income (expense)

Interest (72,500) (0.69) (60,000) (0.74)
Gain on sale of assets 2,538 0.02 71,715 0.88
(69,962) (0.67) 11,715 0.14

Net Income 189,915 1.82 20,798 0.26

Historical Income Statement
 Bottom Line Scorecard
 Sales – COGS = Gross Profit
– Fixed and variable overhead lumped together
– Lines of business noit segregated
 Gross Profit – Operating Expenses =
Operating Income
 Operating Income – Other income and
expense – Provision for taxes = net income
M.S. Ackerman & Co. LLP
Current Income Statement
ABC SHEET PLANT, INC.
INCOME STATEMENT (ESTIMATING SYSTEM FORMAT)
For the years ended December 31,
2004 2003
PER % OF PER % OF
MSF SALES MSF SALES
MSF 120,000 100,000

Net Sales 8,955,000 74.62 100.00 6,982,500 69.82 77.97

Variable costs
Material 4,320,152 36.00 48.24 3,115,353 31.15 34.79
Direct Labor 582,000 4.85 6.50 475,000 4.75 5.30
Variable manufacturing 795,730 6.63 8.89 676,390 6.76 7.55
Shipping 329,742 2.75 3.68 315,234 3.16 3.52
Warehouse 380,618 3.17 4.25 260,760 2.61 2.91
Delivery 192,000 1.60 2.14 170,000 1.70 1.90
6,600,242 55.00 73.70 5,012,737 50.13 55.98
Contribution from corrugated 2,354,758 19.62 26.30 1,969,763 19.69 22.00
Fullfillment
Sales 1,508,000 12.57 16.84 1,128,400 11.28 12.60
Expenses 1,212,289 10.10 13.54 831,588 8.31 9.29
295,711 2.47 3.30 296,812 2.97 3.31
Contributiuon from fullfillment
Total contribution 2,650,469 22.09 29.60 2,266,575 22.66 25.31
Fixed costs
Fixed manufacturing 863,426 7.19 9.64 853,326 8.52 9.53
Selling 849,596 7.08 9.49 766,530 7.67 8.56
Administrative 713,662 5.97 7.97 637,635 6.38 7.12
Interest 72,500 0.60 0.81 60,000 0.60 0.67
2,499,184 20.84 27.91 2,317,492 23.17 25.88
Operating Income 151,285 1.25 1.69 (50,917) (0.51) (0.57)
Other income (expense)
Gain on sale of assets 2,538 0.02 0.03 71,715 0.72 0.80
2,538 0.02 0.03 71,715 0.72 0.80
Net Income 153,823 1.27 1.72 20,798 0.21 0.23
Current reporting model
 Defines contribution broadly
– All direct labor is variable
– Most other plant costs are considered variable
other then rent, depreciation, insurance and
other big ticket items
 Often will separate out lines of business
 Putting the p and l in estimating system
format will facilitate reconciliation

M.S. Ackerman & Co. LLP

Current Reporting Model
 Based upon the notion that Cost plus
provision for profit = sales price
 Full absorption costing – the basic costing
model that has been used by most
manufacturers for quite some time.
– ensures that all costs will be taken into
account in pricing decisions to insure the
company is profitable
– causes elaborate cost allocations to be made,
whether or not they really make sense
M.S. Ackerman & Co. LLP
Current Reporting Model
 Full absorption costing (cont.)
– Always uses a planned level of activity
– Therefore unless the company exactly hits the desired
level of activity there will always be volume variances
– ie. the costs will be “over-absorbed” or “under-
absorbed”
 The pitfalls of full absorption costing
– Efficiencies - Your cost structure is to a large extent a
function of your efficiencies. If you are inefficient,
then your costing system will attempt to pass that on
to your customers by suggesting that you charge
higher prices then you’re more efficient competitors
can.
M.S. Ackerman & Co. LLP
Current Reporting Model
 The pitfalls of full absorption costing (cont.)
– Recouping capital expenditures – The Japanese caused a
major uproar back in the seventies when they decided to look
at there capital costs over a very long period of time. Their
resulting view of the long-term average cost of building plants
and installing equipment allowed them to charge less currently
then their western competitors, who wanted to recoup these
costs over a much shorter period of time.
– Volume variances – No matter what methodology is being
used, all costing system will attempt to allocate the
unallocateable by applying it ratably over a planned level of
activity. When the activity levels are higher or lower then
planned they end up with something called a volume variance.
Positive volume variance means that they recouped more then
their actual costs and negative volume variances mean that
they didn’t recoup enough of them. Is this any way to run a
M.S. Ackerman & Co. LLP
business?
Current Reporting Model
 The pitfalls of full absorption costing (cont.)
– Allocating the “un-allocatable” – Many costs simply cannot be allocated in
a sensible manner. Let’s look at customer service costs as an example.
Certainly there is a cost associated with taking an order and almost every
manufacturer devotes a lot of money to the overall customer service area.
Some orders are complex and require a lot of time from a lot of different
people and others are simple releases from inventory. How does one allocate
this cost back to an order? How does one allocate most overhead costs back
to an order? The answer invariably is “badly”!!! If, for example, square
footage is considered the most objective method of allocation, then every
square foot shipped will contain an allocation of these overhead items. There
are many other possible bases on which to allocate these costs and different
pools of costs can be allocated using different factors. This is what creates
much of the complexity. Most manufacturers don’t have a very good
understanding of what costs are being allocated and what methods are being
used to make the allocations. I came across a manufacturer whose system
allocated all costs based upon footage, so when he got a “labor only job”, the
system didn’t allocate anything. This was an extreme and obvious case and
even he knew that there was something wrong with the system, but how many
other pricing decisions are made based upon dangerously incorrect and often
arbitrary cost allocations?

M.S. Ackerman & Co. LLP

Current Reporting Model
 The pitfalls of full absorption costing (cont.)
– Defining investment – Many costs that are being
charged to the current year income statement really
represent investments in the future. Examples of
this are costs associated with building a design
department or fulfillment operation or developing
new salespeople. They certainly don’t rise to the
classic definition of “research and development”
and they aren’t investments in tangible assets, but
they will (hopefully) benefit future periods. The
question that you must ask is, is it reasonable to
attempt to recoup these costs directly through
increased current prices?
M.S. Ackerman & Co. LLP
 ALLOCATION METHODS
 Charged directly to the product, for example:
– Paper is estimated at a cost per MSF based upon the board grade, quantity
and the prices and waste factors entered into the system. Most material
costs are recaptured in this way.
– Some other costs can be recaptured similarly. Material handling can be
charged per MSF regardless of machine center or it can be charged to
machine centers.
– Delivery is often charged to the product by a combination of miles and
MSF.
– Warehousing is often charged to the product by a combination of number
of releases, number of months and MSF
 Charged directly to the order, for example:
– Some companies identify order related costs, such as customer service and
charge a flat amount per order
 Charged to a cost center. Most manufacturing costs are charged to a
cost center, then the total machine hours are estimated and a machine
hour rate is created. The system then estimates the time that is
necessary to set up and run the order. This time multiplied by the rate
results in the cost that is charged to the order.
M.S. Ackerman & Co. LLP
 Actual versus Estimating System
February, 2004

Contribution per estimating system 697,523

Material Variance (24,553)
Labor Variance (21,979)
Other var costs (multiple of labor) 1.1 (24,177)
626,814

Actual Contribution 590,637

Variance 36,177
Some systems support the following:
Est Actual Var
Sales 2,613,336 2,613,336

Board 1,208,515 1,233,068 (24,553)

Other material 68,197 66,534 1,663
Direct labor 188,787 210,766 (21,979)
Indirect labor 105,032 115,764 (10,732)
Variable costs 197,827 211,272 (13,445)
Warehousing 42,879 54,152 (11,273)
Delivery 104,576 131,143 (26,567)
1,915,813 2,022,699 (106,886)

Contribution 697,523 590,637 106,886

They will also do the same for fixed costs:

Est Actual Var

Fixed Manufacturing Expenses 144,876 170,974 (26,098)
Selling 182,675 216,646 (33,971)
Administrative 86,743 101,334 (14,591)
Interest 49,078 58,806 (9,728)
463,372 547,760 (84,388)
Much of this variance is actually a capacity variance. If you compare the actual to the budget
you will get a better indication of the purchase price variance

Fixed costs Budget Actual Var

Fixed Manufacturing Expenses 171,346 170,974 (372)
Selling 223,250 216,646 (6,604)
Administrative 102,509 101,334 (1,175)
Interest 64,417 58,806 (5,611)
561,522 547,760 (13,762)
THE ART OF PRICING
 ALWAYS PRICE TO AN INDEX OF 100 OR
AN ROS OF 10!!!!!!
 IF YOU CAN GET AWAY WITH THAT THEN
DO IT!!!!!
 IF YOU CAN’T THEN…….
– AFTER CALCULATING WHAT YOUR OWN
“TRUE COSTS” ARE USING FULL ABSORPTION
COSTING
 IMAGINE THAT YOU WERE THE MOST EFFICIENT
BUYER OF RAW MATERIALS, HAD THE BEST PLANT
LAYOUT AND THE MOST EFFICIENT LABOR COSTS
AND THE BEST EQUIPMENT FOR THE JOB IN YOUR
MARKET PLACE AND THEN RE-PRICE THE WORK.
 LOOK AT THE INTANGIBLES OF THE SITUATION
M.S. Ackerman & Co. LLP
THE ART OF PRICING

 IF YOU CAN’T THEN…….

 LOOK AT THE INTANGIBLES OF THE SITUATION

 MAKE A DECISION SOMEWHERE BETWEEN THE

TWO FIGURES AND PAY CLOSE ATTENTION TO THE
CONTRIBUTION COLLARS BEING GENERATED

 AFTER ALL THE BOTTOM LINE IN

MANUFACTURING, NO MATTER HOW YOU VIEW
THE WORLD IS TO GENERATE ENOUGH
CONTRIBUTION DOLLARS TO COVER YOUR FIXED
COSTS!!!!!!!
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FUTURE REPORTING MODEL
 WORLD CLASS (LEAN)
MANUFACTURING THEORY STARTS
FROM THE PREMISE THAT SINCE
THE “MARKET” SETS THE PRICE,
ALL THE MANUFACTURER CAN DO
IS DECREASE COSTS
 iT IS THEREFORE BASED UPON THE
FOLLOWING FORMULA
– SALES PRICE LESS COST = PROFIT
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LEAN MANUFACTURING
 PRODUCTIVE CAPACITY IS INCREASED
BY 50 – 100%
 LABOR AND OVERHEAD ARE A MUCH
LOWER PERCENTAGE OF SALES THEN
THEY WERE PREVIOUSLY, SO IT DOESN’T
PAY TO SPEND A LOT OF RESOURCES
ALLOCATING THEM TO EACH ORDER
 THE KEYS TO SUCCESS LIE MORE WITH
PERFORMANCE MEASUREMENT AND
PROCESS IMPROVEMENT
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 ABC SHEET PLANT, INC.
INCOME STATEMENT LEAN
For the years ended December 31,
POST PRE
PER % OF PER % OF
MSF SALES MSF SALES
MSF 150,000 100,000

Net Sales 10,124,625 74.62 100.00 6,982,500 69.83 100.00

Variable costs -
Material 5,046,872 33.65 49.85 3,115,353 31.15 44.62
Direct labor overtime 101,333 0.68 1.00 225,632 2.26 3.23
Manufacturing 222,363 1.48 2.20 192,529 1.93 2.76
Shipping 53,542 0.36 0.53 315,234 3.15 4.51
Warehouse 55,232 0.37 0.55 39,997 0.40 0.57
Delivery 92,687 0.62 0.92 76,543 0.77 1.10
5,572,029 37.15 55.03 3,965,288 39.65 56.79
Contribution from corrugated 4,552,596 37.47 44.97 3,017,212 30.17 43.21
Fullfillment
Sales 1,508,000 100.00 1,128,400 100.00
Variable costs 467,222 30.98 432,333 38.31
1,040,778 69.02 696,067 61.69
Contributiuon from fullfillment
Total contribution 5,593,374 3,713,279

Fixed costs 5,000,000 3,700,000

Net income 593,374 5.10 13,279 0.16

LEAN COSTING
 FOCUS ON CONTRIBUTION
DOLLARS (WITH CONTRIBUTION
BEING DEFINED AS THE
INCREMENTAL COST OF THE
ORDER)

M.S. Ackerman & Co. LLP

LEAN PRICING
 NOT MUCH TO DO HERE BUT MAKE
SURE THAT SUFFICIENT
CONTRIBUTION DOLLARS ARE
GENERATED AND THAT THERE IS
AVAILABLE TIME AT THE MACHINE
CENTER (S)

M.S. Ackerman & Co. LLP

 DEFINING CONTRIBUTION

CATEGORY FULL ABSORPTION NEW DEFINITION*

SALES 20X 20X

MATERIALS X X
OUTSOURCED PRODUCTS X X
DIRECT LABOR X
TEMPORARY LABOR X X
INDIRECT LABOR X
PLANT OVERTIME X X
VARIABLE PLANT COSTS X
DRIVERS X
DRIVERS OVERTIME X X
COMMON CARRIER FRT. X X
VARIABLE SHIPPING X
COMMISSIONS X
11X 7X

CONTRIBUTION 9X 13X

DIRECT LABOR X
INDIRECT LABOR X
VARIABLE PLANT COSTS X
DRIVERS X
VARIABLE SHIPPING X
FIXED PLANT COSTS X
FIXED SHIPPING X X
SELLING X X
GEN. AND ADMIN. X X
COMMISSIONS X
5X 9X

OPERATING INCOME 4X 4X

* THE "NEW DEFINITION" CAN BE DIFFERENT FOR EVERY COMPANY.

THE DETERMINING FACTOR AS TO WHETHER A COST IS ABOVE OR
BELOW THE CONTRIBUTION LINE IS HOW THE COST IS MANAGED.
IN MOST PLANTS ALMOST EVERYTHING THAT HAS HISTORICALLY
BEEN CALLED "VARIABLE", INCLUDING DIRECT AND INDIRECT LABOR
IS IN REALITY FIXED ACROSS A FAIRLY WIDE RANGE OF VOLUME.
DEAL FROM STRENGTH
 IF A VENDOR OR CUSTOMER OR
EMPLOYEE SENSES WEAKNESS YOU
WILL NOT GET THE BEST DEAL POSSIBLE
 DON’T TAKE ON ORDERS JUST TO
“COVER OVERHEAD” – PRICE CUTTING IS
THE ULTIMATE MANIFESTATION OF
DEALING FROM WEAKNESS
 DON’T OVERPAY EMPLOYEES BECAUSE
YOUR AFRAID THEY’LL LEAVE
 GAMESMENSHIP AND A GOOD POKER
FACE!
M.S. Ackerman & Co. LLP
SELF HELP EXERCISE #4
 REVIEW YOUR FIVE LEAST PROFITABLE CUSTOMERS AND COME
UP WITH WAYS OF INCREASING PRICES OR ELIMINATING THEM
 IF YOUR ANSWER IS THAT YOU JUST CAN’T SURVIVE WITHOUT
THEM GO BACK TO REASON NUMBER ONE AND WORK A LITTLE
HARDER AT IT
 REVIEW ALL OF YOUR EXPENSES AND DETERMINE WHICH ONES
ARE TRULY VARIABLE
 REORGANIZE YOUR P AND L BASED UPON FIXED VERSUS
VARIABLE COSTS AND DETERMINE WHAT CONTRIBUTION IS
 TRACK THE CONTRIBUTION FROM EACH ORDER FOR A MONTH
AND RECONCILE THE ACTUAL CONTRIBUTION FROM THE
ESTIMATED CONTRIBUTION AND SEE HOW BIG A DIFFERENCE
THERE IS
 DIVIDE THE FIXED COSTS BY THE NUMBER OF DAYS IN THE
PERIOD TO SEE HOW MUCH CONTRIBUTION YOU NEED TO BOOK
EACH DAY TO BREAK EVEN

M.S. Ackerman & Co. LLP

DON’T CODDLE YOUR
SALESPEOPLE
 ANOTHER PRIME EXAMPLE OF DEALING
FROM WEAKNESS, BUT VERY PERVASIVE
 SALESPEOPLE ARE HUNTERS AND MOST
OF ALL WANT GOOD “HUNTING TOOLS”
 GIVE THEM NEW INNOVATIVE NON-
TRADITIONAL PRODUCTS AND SERVICES
 INCENTIVIZE THEM TO SELL WHAT IS
MOST PROFITABLE FOR YOU
 GIVE THEM SOMETHING EXTRA FOR NEW
ACCOUNTS
 DON’T LIVE IN FEAR OF THEM!
M.S. Ackerman & Co. LLP
SELF HELP EXERCISE #5
 RANK YOUR SALES FORCE BASED
UPON CONTRIBUTION
 PICK THE TWO WORST
PERFORMERS AND WORK WITH
THEM TO IMPROVE
 CONSIDER SWITCHING EVERYONE
TO A COMMISSION BASED MORE ON
CONTRIBUTION THAN SALES

M.S. Ackerman & Co. LLP

INITIATE WASTE CONTROL
 MATERIALS ARE THE BIGGEST COST IN
YOUR P AND L, BUT DEFINE WASTE
BROADLY
 TOO MUCH WASTE CAN BE FATAL
 CUTTING DOWN ON WASTE WILL
DRAMATICALLY INCREASE PROFITS
 RAISING EVERYONES CONSCIOUSNESS
AND ALLOCATING RESOURCES TO WASTE
CONTROL IS THE FIRST STEP
 DON’T ALLOW MISTAKES TO “SNEAK
THROUGH” – CULTURE CHANGE!!
 MOST PROFITABLE COMPANIES HAVE
FORMAL WASTE CONTROL PROGRAMS
M.S. Ackerman & Co. LLP
SELF HELP EXERCISE #6
– BUY A BOOK ON LEAN OR “WORLD CLASS”
MANUFACTURING
– CONSIDER HIRING A CONSULTANT TO DO AN
INITIAL SURVEY
– THERE IS WASTE AND INEFFICIENCY IN EVERY
OPERATION FROM SALES SERVICE TO
PRODUCTION TO DELIVERY
– ULTIMATE TANGIBLE BENEFITS ARE LESS
WASTE, INCREASED CAPACITY, SHORTER
CYCLE TIMES FROM ORDER TO DELIVERY
– INTANGIBLE BENEFITS INCLUDE HAPPIER
CUSTOMERS, EMPLOYEES AND SUPPLIERS
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MOTIVATE EMPLOYEES
 PEOPLE ARE YOUR MOST VALUABLE
ASSET
 ATTRACTING AND MAINTAINING GOOD
PEOPLE IS DIFFICULT THE KEYS ARE
 LISTENING TO THEM
 EMPOWERING THEM
 MAKE THEM FEEL THAT THEY CAN
CONTRIBUTE
 MEASURE PERFORMANCE
CONSISTENTLY AND OBJECTIVELY
 REALISTIC INCENTIVE COMPENSATION
PROGRAMS
 CONSIDER “GOLDEN HANDCUFF”
ARRANGEMENTS
M.S. Ackerman & Co. LLP
SELF HELP EXERCISE #7
 THINK OF TWO INSTANCES WHERE YOU MAKE ALL OF
THE DECISIONS THAT YOU SHOULD BE ABLE TO
DELEGATE
 PICK OUT THE PEOPLE WHO YOU THINK CAN HANDLE IT
AND BEGIN TRAINING THEM IMMEDIATELY
 MONITOR THEM CLOSELY, BUT EXPECT MISTAKES –
THAT’S THE ONLY WAY THAT THEY WILL LEARN
 FOR EACH CATEGORY OF EMPLOYEE COME UP WITH 2 OR
THREE KEY PERFORMANCE INDICATORS AND MEASURE
THEM DAILY FOR A FEW MONTHS.
– MAKE SURE TO GIVE THE EMPLOYEES THE DATA
– GET THEM INVOLVED IN TRACKING IT
– MEET WITH THEM ON A REGULAR BASIS TO DISCUSS THE
RESULTS
– CONSIDER SOME SORT OF MONETARY OR NON-MONETARY
SYSTEM OF REWARDS BASED UPON THE RESULTS

M.S. Ackerman & Co. LLP

FORGE VENDOR RELATIONSHIPS
 JUST LIKE YOU WANT TO FORGE
“PARTNERSHIPS” WITH YOU CUSTOMERS,
YOUR VENDORS WISH TO DO THE SAME
WITH YOU
 YOU NEED ALL THE FRIENDS YOU CAN
GET WHEN TIMES ARE TOUGH
 IS PRICE ALWAYS THE KEY?
 WHAT ABOUT QUALITY?
 WHAT ABOUT ON-TIME DELIVERY?
 SHOW A LITTLE LOYALTY AND IT WILL
PAY OFF “IN SPADES”

M.S. Ackerman & Co. LLP

SELF HELP EXERCISE #8
 REVIEW YOUR VENDOR LIST AND
PICK OUT TWO VENDORS THAT YOU
DON’T HAVE A PERSONAL
RELATIONSHIP WITH
 PICK UP THE PHONE AND ARRANGE
A MEETING
 WHO KNOWS WHAT OPPORTUNITIES
YOU AND YOUR NEW FRIEND MAY
FIND!

M.S. Ackerman & Co. LLP

BE A BOOSTER
 THERE ARE DISTINCT ADVANTAGES
TO BEING VIEWED AS THE “HOME
TEAM”
 RECRUITING EMPLOYEES, GETTING
BUSINESS FROM OTHER “LOCALS”,
GETTING ZONE CHANGES, ETC.
 BE A GOOD NEIGHBOR
 JOIN LOCAL GROUPS AND “RUB
ELBOWS” WITH LOCAL “BIG SHOTS”

M.S. Ackerman & Co. LLP

SELF HELP EXERCISE #9
 SOLICIT OPINIONS FOR A LOCAL
CAUSE FOR YOUR COMPANY TO GET
BEHIND
 SOMETHING THAT BENEFITS NEEDY
PEOPLE OR GIVES THE COMMUNITY
A SENSE OF PRIDE
 PLAN TO GET ALL OF YOUR PEOPLE
INVOLVED AND BE GENEROUS

M.S. Ackerman & Co. LLP

BE CAREFUL WITH CAPITAL
 GET OVER THE START-UP CULTURE OF
WORKING ON A SHOE STRING BUDGET
 DON’T WITHDRAW TOO MUCH CAPITAL
TO FUND YOUR LIFESTYLE
 YOU DON’T ALWAYS HAVE TO HAVE THE
LATEST AND GREATES INNOVATION
 LEVERAGE CAN BE A GOOD THING,BUT
TOO MUCH LEVERAGE CAN KILL
 BORROWING TO FUND EXPANSION IS
NEEDED, BUT BORROWING TO FUND DAY
TO DAY OPERATIONS OR DISTRIBUTIONS
CAN BE PROBLEMATIC
M.S. Ackerman & Co. LLP
SELF HELP EXERCISE #10
 LOOK AT YOUR BALANCE SHEET FOR
THE CURRENT MONTH AND THE LAST
THREE YEAR ENDS
 DIVIDE TOTAL LIABILITIES BY TOTAL
EQUITY.
 THIS IS YOUR OVERALL LEVERAGE OR
DEBT TO EQUITY RATIO
 IS IT GETTING BIGGER OR SMALLER?
 IS IT GREATER THAN 3:1
 A LARGE AND CONTINUALLY GROWING
NUMBER SHOWS A COMPANY THAT IS AT
RISK OF FAILING
M.S. Ackerman & Co. LLP
RECOMMENDATIONS
 TAKE A HARD LOOK AT YOUR
STRENGTHS AND WEAKNESSES
 ALWAYS BE ON THE LOOKOUT FOR
OPPORTUNITIES AND THREATS
 HIRE GOOD PEOPLE, INCENTIVIZE THEM
AND MEASURE THEIR PROGRESS
CONSISTENTLY AND OBJECTIVELY
 CONSIDER REGULAR OFF-SITE RETREATS
WITH KEY PEOPLE AND LISTEN TO WHAT
THEY HAVE TO SAY
 HAVE A SHORT MEDIUM AND LONG RUN
PLAN
 COMMUNICATE KEY COMPANY
OBJECTIVES TO EVERYONE
M.S. Ackerman & Co. LLP
CHANGES IN THE
BANKRUPTCY SYSTEM

FPPA MANAGEMENT
WORKSHOP

M.S. Ackerman & Co. LLP

PREFERENCE ACTIONS
 FOR PAYMENTS MADE WITHIN 90 DAYS OF FILING
– UP TO ONE YEAR FOR INSIDERS
 DEFENSES
– CONTEMPORANEOUS EXCHANGE FOR VALUE (COD,CIA)
– New value given after transfer
– Payment was made in the ordinary course of business
 Either transfer was ordinary between the debtor and creditor, OR the transfer
was made according to normal business terms.
– No preference actions when aggregate claim is less than $5,000
– Must file in Federal District Court where the creditor resides if the
aggregate claim is within $5,000 - $10,000

M.S. Ackerman & Co. LLP

Be Sure That You Have in Your
File
 Proof of delivery.
 Bills of lading.
 Copies of canceled checks.
 Invoices.
 Purchase orders.
 A log of when checks were presented to you
by the customer.

M.S. Ackerman & Co. LLP

Be Prepared to Reclaim
 Send reclamation letter (UCC § 2-702)
– Will cover goods shipped 45 days prior to filing
– Must be made within 20 days after filing
– Get fax and Fed Ex address of CFO and President.
– Send a local person to the debtor’s facility to see what is on hand.
– Reclamation is no good for goods already re-sold.
– Reclamation claims are subordinate to “blanket” liens.
– Reclamation is no good for raw materials already converted to WIP or finished
goods.
 Stop goods in transit.
 Cut off outgoing or pending orders.

M.S. Ackerman & Co. LLP

Be Prepared to Reclaim
 Reclamation period can be extended to 20 days if 10 day period
extends after filing
 Reclamation remedies
– Return of goods
– Replacement lien
– Administrative claim
 Applies to debtors property in a third party warehouse
 If debtor destroys records, then the burden of proof may shift to
debtor
 Be aware of “critical vendor” status

M.S. Ackerman & Co. LLP

CREDITOR COMMITTES
 Court is now empowered to make changes to
committees mid case
– Creditors can now be added or removed after initial
meeting
– Small business creditors are now encouraged to be
part of committees
– Committees must now share information with non
member creditors
– Committees must now provide information and solicit
comments from non member creditors

M.S. Ackerman & Co. LLP