blake barnett - lunch & learn june 23, 2017

Barnett & Associates, LLC

Transforming Privately Held Firms:

Proven Strategies from a CFO’s Perspective

June 23rd

, 2017

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Today’s Agenda

• A brief background on myself

• Key Reasons why Private and Family owned firms succeed

• Tool and Strategies that consistently deliver improved business performance

• Characteristics of Firms at an Inflection Point

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Learned Best Practices from Some Good Retailers



Background Summary

● Strategic Planning

Learned Best-Practices from Top-TierMulti unit, retail firms

● Investing in your team:→ Reward & Recognition→ Clarify Roles & Respon.→ Coaching and Mentoring

● It’s all about Relationships: Cross-functional partnering for results

● Develop and Implement IT systems that both Support Ops. and Enable Strategy

Application of the Learningsin Private & PE firms

● There is no substitute for a Road Map to success

● More powerful than the other three combined

● Organizations can absorb X change, not more:→ PE owned firms are HIGHLY situational→ PE (and CEO) Support is everything

● The Culture of the firm defines the firm

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Best Practices Learned from Corporate America

Company # of Units Rev $B Accomplishments

Unocal 1,500 $5B ● Partner w/ D&T to design and Impl. Custom IT solution for over 000’s of Fuel deliveries/yr.

→ Error rate from 18% to < 1%

● Partner w/ McKinsey to design micro pricing zones & algorithms:

→ Manage daily pricing activity. 1¢/day = $20M/yr.

Taco Bell 5,000 $5B ● Lead first ever regional pricing approach → $MMM of incremental profit (we all bonused!)

● Partner with Mktg. on Product Pipeline→ Analyze test market results of new items: Chulpa, GSB

● Develop the first Balanced-Scorecard: still in use today

Albertson’s CA 500 $9B ● CFO for California:→ Identified & focused the Org. on Four key strategic initiatives→ Rebuilt the Finance & Accounting Teams→ Implement daily scorecard to track Labor

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Barnett & Associates, LLC 6


Today’s Agenda





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Experience with many Ownership models over the last 10 years

Combined # Sales

A. Founders sold to PE 3 $900M

C. Entrepreneurial/Angel Investor 2 $175M

>$1.4B

B. Family Owned/Private 2 $325M

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Founders Sold to PE: Translating Best-Practices

Translate Best-Practices into specific solution:How many tools do you have in your tool-box?

Annual Sls. Business Ownership Solutions Implemented

$600M Multi-Unit PE ● Design & Impl. Daily scorecardRetailer ● Implement period P&L reviews with each Category Mgr.

● Implement new debt and Treasury structure

$150M Importer of PE ● Rebuild Finance and Accounting teamsafter-market Auto ● Created an FP&A functionparts ● Implement ERP – Redefine core processes

$150M Multi-Unit, PE ● Design & Implement weekly scorecardMulti-State ● Improve monthly analytics; involve Ops. in P&L reviewsOperator ● Renegotiate insurance lines

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Family/Private Owned: Translating Best-Practices

$225M National Private ● Implemented two new IT systems – Reengineer core processes

Retailer ● Introduced forward planning tool/approach

Annual Sls. Business Ownership Solutions Implemented$100M Restaurants & Family ● Implemented and ERP system – Reengineer core processes

other ● Implemented weekly scorecards● Helped create the FP&A Function

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Entrepreneur/Angel: Translating Best-Practices

$100M Multi-Unit, Angel ● Partner with CEO to ID 3 – 4 key Strategiesspecialty retailer ● Rebuild Finance and IT teams

● Outsource Accounting (low value added task)

Annual Sls. Business Ownership Solutions Implemented$ 75M Multi unit Entrepreneurial ● Work with CEO on restructuring Options

retailer ● Partner with Controller to improve Treasury and Close● Improve basic IT security

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Developing a Framework to understand successful firms:

- What drives their success?

Business Proposition

- Maniacal focus on Sales

- Bold/Risk Taker

- Exploited a Niche

- Passion for the Business

Culture/Process

- Autocratic Mgt. style

- Family members involved

- Structured HR processes:

annual reviews, etc.

- Closely guarded financial

info. ‘Need-to-Know’

PE Purchased Firms $600M $150M $150M *

* ‘Mission’ Driven Company, which possesses a very unique culture

Family Owned/Private$100M $225M

Angel/Entrepreneur$75M $100M

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Highly Applies Moderate Application Low Application


Today’s Agenda





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Characteristics of Firms at an Inflection Point

• Founder/Owner sold; much less involved in day-to-day Ops.

• Long Tenured Team

• IT Systems dated or past end-of-life

• A great deal of data; little actionable information

• Director of IT spends 2 to 3 days/month reviewing phone bills

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• Some ‘shock’ to the system forces change: Macro-Econ, founder death, etc.

• Sales & EBITDA growth slow/negative

• Low Accountability



• Founder/Owner less involved in day-to-day

• ‘Shock to the System’forces change

• Sales & EBITDAgrowth slowed/negative

• Long tenured Team


• IT systems past end-of-life

• Data, but not Actionable

• Dir. of IT reviews PhoneBills


















Highly Applies Moderate Application Low Application 18


WAL-MART (USA)

Income StatementFiscal Year 2012 Actuals + Latest Estimate

2012 Actuals + Latest Estimate (v.1) Jan Feb Mar Apr May Jun Jul

Gross Sales 1,543,502 1,540,506 1,939,474 1,027,158 960,576 1,460,551 1,145,086

Price Increase 0 0 0 0 0 0 0

New Business 0 0 0 0 0 0 0

Supplier Finance Discount 6,174 6,164 7,758 4,109 3,842 5,842 4,580

Returns 0 0 0 0 0 0 0

Penalties 0 0 0 0 0 15,570 0

Allowances 30,825 32,043 42,072 22,731 20,269 37,570 27,435

Net Sales 1,506,503 1,502,298 1,889,644 1,000,318 936,464 1,401,569 1,113,072

Cost of Gross Sales 1,036,521 1,020,649 1,293,019 683,841 659,868 1,025,320 844,822

Memo: COGS % of Gross Sls. 67.15% 66.25% 66.67% 66.58% 68.70% 70.20% 73.78%

Cost Increase 0 0 0 0 0 0 0

Cost Increase - QSHK 0 0 0 0 0 0 0

New Business-COS 0 0 0 0 0 0 0

New Business-Dist/Frt 0 0 0 0 0 0 0

Operations 14,644 28,996 31,941 25,648 21,784 17,194 21,501

Distribution (3PL) 48,224 51,067 58,337 49,646 41,728 48,876 46,138

Security 833 3,652 3,258 2,415 2,120 2,925 2,410

Royalties (confirm EH Guarnty) 0 2,760 0 2,059 1,990 1,804 943

Obsolete Expense 0 0 0 2,065 1,807 1,931 0

Other Cost of Sales 4,322 0 0 10,353 0 0 (154,874)

Freight Out 133,014 351,052 (51,488) 264,246 88,887 156,507 225,699

Gross Profit 268,945 44,121 554,578 (39,956) 118,280 147,012 126,432

Gross Profit Margin 17.9% 2.9% 29.3% -4.0% 12.6% 10.5% 11.4%

Prime Profit Margin 32.8% 33.7% 33.3% 33.4% 31.3% 29.8% 26.2%

Gross Profit Less Commission Margin 17.9% 0.9% 29.3% -5.9% 10.5% 9.5% 10.4%

Commission 0 30,805 0 18,814 20,207 14,528 11,206

Selling & Marketing 42,511 92,536 103,069 67,932 51,144 67,260 32,045

General & Admin 40,484 61,752 81,583 53,964 54,910 64,318 52,065

Operating Income 185,950 (140,971) 369,925 (180,666) (7,980) 906 31,116

Operating Income Margin 12.3% -9.4% 19.6% -18.1% -0.9% 0.1% 2.8%

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Created P&L’s by Customer and Product to Drive Accountability


Month Month Month Month Week Week Week Week Week Variance Variance %

Driver Metrics Business Segment Jan-17 Feb-17 Mar-17 Apr-17 5-May-17 12-May-17 19-May-17 26-May-17 2-Jun-17 (Wk over Wk) (Wk over Wk)

Cost House-Level Labor $ Texas Waiver GH 112.9% 105.1% 107.8% 104.2% 105.8% 103.4% 105.7% 107.3% 1.6%

Metrics % of Optimal Texas ICF 111.4% 106.7% 101.1% 95.8% 94.7% 100.5% 97.2% 100.7% 3.5%

Tennessee Waiver GH 107.7% 105.7% 106.2% 105.5% 106.5% 106.8% 108.2% 105.9% -2.3%

Tennessee ICF 87.8% 100.9% 100.3% 103.3% 105.2% 101.4% 104.6% 106.9% 2.2%

Kentucky GH 94.8% 97.2% 100.6% 101.5% 91.8% 97.3% 96.7% 89.8% -6.9%

House-Level Hours Texas Waiver GH 106.6% 98.8% 102.1% 98.9% 100.1% 98.4% 100.2% 102.0% 1.8%

% of Optimal Texas ICF 106.4% 100.7% 95.6% 89.8% 88.4% 94.2% 91.2% 93.4% 2.2%

Tennessee Waiver GH 100.8% 98.2% 98.5% 98.1% 98.9% 99.3% 100.3% 97.9% -2.4%

Tennessee ICF 84.1% 95.1% 95.0% 98.3% 99.9% 97.7% 100.6% 101.8% 1.2%

Kentucky GH 91.4% 92.8% 95.7% 97.0% 88.7% 92.9% 92.6% 84.9% -7.7%

House-Level Labor Texas Waiver GH 12.0% 12.7% 11.1% 10.7% 11.4% 10.2% 11.0% 10.4% -0.6%

% OT Texas ICF 9.6% 12.0% 11.6% 13.2% 14.3% 13.5% 13.1% 15.7% 2.5%

Tennessee Waiver GH 13.7% 15.4% 15.6% 15.0% 15.4% 15.1% 15.8% 16.4% 0.6%

Tennessee ICF 8.9% 12.3% 11.0% 10.2% 10.6% 7.6% 8.0% 10.0% 1.9%

Kentucky GH 7.4% 9.4% 10.2% 9.2% 7.1% 9.5% 8.9% 11.6% 2.7%

House-Level Labor Texas Waiver GH $10.19 $9.99 $9.84 $9.81 $9.85 $9.79 $9.80 $9.76 -0.4%

Avg Compensation Texas ICF $9.94 $9.86 $10.31 $10.29 $10.25 $10.23 $10.22 $10.41 1.8%

Tennessee Waiver GH $11.78 $11.91 $11.22 $11.13 $11.16 $11.10 $11.07 $11.09 0.2%

Tennessee ICF $14.09 $14.49 $14.07 $14.03 $14.13 $14.08 $14.10 $14.24 1.0%

Kentucky GH $9.02 $9.44 $9.58 $9.40 $9.28 $9.28 $9.28 $9.28 0.0%

Open Pos i tions Texas Waiver GH 66 68 66 52 60 54 59 56 -4.6%

(Calculated from OT) Texas ICF 11 13 14 13 15 14 14 17 22.1%

Tennessee Waiver GH 99 113 129 101 112 110 115 118 2.4%

Tennessee ICF 5 8 8 6 7 5 5 7 25.3%

Kentucky GH 4 5 6 4 4 5 4 6 31.8%

Total 184 207 222 177 199 187 198 204 2.9%

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Barnett & Associates, LLC23

POS

BOH

Above-Store

Micros

Micros- Lbr Schd- Menu Items- Sales

- Sales- Labor- Financials

- PO- Invoices- Inventories- Paid outs

EPICOR (G/L, A/P, A/R, Budgets)

Key Differences in proposed Architecture

Micros

Compeat- COS- Invoices- Inventory

Micros- Lbr Schd- Menu Items- Sales

Compeat- GL- A/P- A/R

- Sales- Labor- Financials

- PO- Invoices- Inventories- Paid outs

EPICOR (Consolidating GL)

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Finance Boot Camp: The Balance Sheet ‘Made Simple’ASSETS:Cash 243,013$

Undeposited Funds 6,145

Cash Restricted for Gift Cards/AD Fund 266,582

Petty Cash 9,820

Accounts Receivable 453,925

Allowance for Doubtful Accounts (94,032)

Accounts Receivable Net 359,894$

Intercompany Receivable -

Inventory 192,455

Prepaids Expenses & Deposits 6,735

Current Portion of Notes Receivable 12,964 1,457,501$

Total Current Assets 1,097,607$

Property and Equipment 234,014$

Less: Depreciation (47,978)

Property and Equipment Net 186,036$

Goodwill 1,163,009

Intangible Assets Net 1,630,997

TOTAL ASSETS 4,080,630$

LIABILITIES AND EQUITY:Lines of Credit -$

Accounts Payable and Accrued Expenses 531,323

Intercompany Payables 1,634,727

Sales Tax Liability 50,108

Payroll Liability 123,915 -

Current Portion of Notes Payable -

Total Current Liabilities 2,861,855$

Credit Line 0

Convertible debt -

Notes Payable Net of Current -

Lease Security Deposits from Franchise -

Provision for Store Closures 188,817

TOTAL LIABILITIES 3,050,672$

Members Equity 3,100,000$

Retained Earnings Beginning 68,229

Current Earnings (2,138,311)

Retained Earnings Ending 1,029,918$

TOTAL LIABILITIES AND EQUITY 4,080,630$

- Summarized Assets and Liabilities.- The difference is ‘net equity’, or what we’re worth

at this point in time.

What we own or are owed (assets)

What we owe or have used but not paid for (liabilities)

What we are worth (the bottom line) 27June 23rd, 2017


Why is implementing change so hard?

- Without the founders driving force, the Org. is ill equipped to sustain itself

From the ‘Known”

• Safe

• Routine

• Accepteddeficiencies

• Backward Looking

To the ‘Unknown’

• Uncertainty

• Disruption

• Improved State

• Forward Planning

Fear is a Powerful

Impediment to change

A crisis (of some sort) is often the impetus to take a risk:• Liquidity Crisis• Rapid decline in sales• Major IT implementation

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Today’s Agenda





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Tools and a Framework that Deliver Consistent Results

- Developed at Taco Bell/Pepsi

• Strategy

• Structure

• Culture

• Rigorous analysis of desired mkt. positioning• Honest assessment of current capabilities• Identify 3 – 4 Key Initiatives to pursue

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• The right people = Intellectual curious• IT Systems / KPI’s• Clarify Roles & Responsibilities

• Driving Accountability• Communication, Coaching & Support• Reward and Recognition


A clear vision for the Firm over the next, say, 36 months

3 – 5 Key Initiatives that drive alignment across the Organization

Forces identification of the specific tactics and measures (KPI’s) that support each initiative

Provides a context for management to regularly engage and provide feedback to the team; course correct as needed

Tools and a Framework: Strategy

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Tools and a Framework: Structure

- People and Systems

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People:

(Re)build the team with outside talent: a fresh perspective

Emphasis on intellectual Curiosity

Clarify Roles & Responsibilities

Engage all functions and levels of the business *

Systems:

(Re)implementing IT systems allows you to:

Streamline the business, and

Question everything

Processes reengineering allows fundamental roadblocks to be addressed:

Overly complex Legal Structures

Multiple General Ledgers / Chart of Accounts

Clarify Roles and Responsibilities


Tools and a Framework: Culture

- How we Work Together

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Drive Accountability through:

KPI’s & daily/weekly scorecards with specific owners – takes the emotion out

Institute regular P&L reviews – forward looking

Focus on Communication, Coaching and Support:

Weekly one-on-ones with ALL direct reports

Support Center team works 2 -3 days/week in the Field

Regular (monthly or quarterly) Town Halls *

* Tends to work better in Larger Organization or Geographically disbursed firms.

Reward and Recognition:

Create an Award

Hand written Thank You notes

Gift Cards


Putting it together in Practice: A simple Framework

1. Strategy Development /

Goal Setting

2. Budgeting: Identify tactics & timeline by

function

3. Daily / Weekly

Scorecard

4. Monthly Business Reviews /

Update Forecast & Tactics

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• Sr. Team Driven• Layout BIG Goals• Outline general approach

• ID tactics to achieve each goal• ID resources & timelines• Bottoms-up build to drive

commitment

• Implement daily / weeklyScorecard

• Drive accountability

• Mgr’s present to Sr. Team• Coaching / Growth

opportunity


• Owner-lead firms are Passionate about their business, beyond $

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Key Take Away’s

• Success in the past ≠ Success in the future; in fact the opposite

• Things that get measured get done!

• Strategy, Structure and Culture is an extremely powerful

framework to effectively manage any organization


Q&A

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Thank you for your time this afternoon