FrankRimerman FRG Reprint

North Bay
Business Journal
Financial resource guide
Business Journal Reprint from May 11, 2009 / Pages 18-19
NORTH SAN FRANCISCO BAY AREA: SONOMA, NAPA, AND MARIN COUNTIES
Searching for opportunities in
an uncomfortable world
by Jared Lauber and Joe Orlando
Frank, Rimerman Consulting
A DIVISION OF
F RANK , R IMERMAN + C O .
LLP
“There is no security on this earth, there is only opportunity.”
E
– General Douglas MacArthur
Even as portfolios gain
back some of the value
lost over the last two
quarters and the economy slowly reacts to
government stimulus, we
recognize a common
characteristic in our clients: a lack of comfort.
In these times of economic upheaval, we
sometimes see individuals and business
owners let doubt and, at worst, fear creep
into their decision-making process. An
uncomfortable world forces all of us to
ask difficult questions and immediately
address decisions we may rather delay.
Moving outside our comfort zones and
into a world of change is difficult for individuals and businesses alike.
However, history demonstrates that a
discipline of constant, systematic and
focused review of individual habits and
business processes produces opportunity
as the reward. Understanding and assessing risk and making the right decisions
based on the best available and most complete information is the key to survival in
a recessed economy. It is also the seed to
success in better economic times.
The shock of a prolonged recession has
caused many individuals to understand
and review their personal balance sheets
with the same discipline they apply in
their business lives. Indeed, the connection between an individual’s financial
position and that of the businesses they
own or manage has never been greater.
Let us look at these two perspectives
starting with a simple assumption: risk has
different meanings to different people. In
this article, we broadly define risk as the
possibility of an event occurring that will
have a negative impact on execution and
achievement of individual and business
goals.
A Business Perspective
In a post-TARP world, the U.S. Treasury developed a “stress test” to determine
the health of America’s largest banks in
order to understand the current and ongoing risk in these institutions.
We promote a similar but more proactive approach. Regardless of their stage
of development, we recommend an
ongoing risk-management assessment
framework for businesses that is flexible
and directly aligns the business’ goals, risks
and controls with those of the owners. In
the current economic environment, a
business may look to reduce costs in response to lower revenue forecasts. Without an ongoing assessment framework to
understand and manage risk, costs may
be cut across the board arbitrarily.
However, a specific risk-management
assessment framework where business
processes are continuously measured
against industry best practices would provide a business the ability to avoid uniformed expense control decisions and
balance these decisions with necessary
investments to stabilize the business and
set the stage for sustained growth.
In such a scenario, a thoughtful review
may highlight one or two key adjustments
to the cost structure that can meet or exceed the cost cutting goal and strengthen
the enterprise value. By maintaining full
visibility of its business and understanding risk, management may identify an
opportunity to consolidate vendors and
maximize purchasing power to create a
highly competitive and cost-efficient market for its business.
On the other hand, maintaining the
status quo without constant review, testing and measurement of all aspects of the
business may lead to inefficiency and
weakness, as well as increasing the likelihood cost-cutting goals will not be met.
An Individual Perspective
An individual may set a goal for their
portfolio to grow at a rate of 6% a year.
In setting this goal, the individual accepts
the risk attached to the assets within the
portfolio that may negatively impact this
goal. To invest in the appropriate assets,
an individual or his/her portfolio manager needs to understand the investor’s
tolerance for risk before making the right
investments in order to achieve this goal.
Young or old, conservative or aggressive, a simple truth remains for all investors: the greater the risk, the greater the
reward or loss. As trusted advisors to
individuals and businesses, we strongly
believe the key in qualifying and quantifying risk is a thorough understanding of
one’s goals, the plan to achieve the goals
and the development of a framework by
which this plan is constantly tested and
updated.
Similar to businesses, individual and
family budgets help monitor and control
spending in order to meet wealth creation
goals. A continuous review of spending
by category can help determine where cuts
can be made, when savings can be realized and how wealth can be created. Paying and tracking a mortgage payment is
fundamental to managing a family budget, but keeping up to date with oppor-
© 2009 North Bay Business Journal. Reproduction in any form prohibited without permission.
tunities to refinance a mortgage with existing or new lenders is a key to creating
wealth. In simple terms, understanding
and mitigating risk drives both individual
and business success and wealth.
In Conclusion
The key to any decision-making process, especially in the assessment of risk,
is a continuous and thoughtful assessment
of available information. Every business
owner must develop a fundamental understanding of the facts surrounding their
business. Business owners need to know
as much as they can about themselves and
the world in which they compete. Similarly, every individual needs to understand
their personal income statement and balance sheet. The better prepared a business owner or individual is to embrace
change, understand risk, maintain visibility and seek out opportunity, the more
likely they can begin the process of putting comfort back into what has become
an uncomfortable world.
■■■■■
Established in 1949, Frank,
Rimerman + Co. LLP is unique for its
pervasive passion and its nimble delivery
over its 60 years of experience. With of-
Joe Orlando, Senior Manager,
fices in St. Helena, San FranConsulting, Business Valuation,
cisco, Palo Alto and San Jose,
Wine Business Services – Joe’s
and its independent memberexpertise is fundamental valuaship in Baker Tilly International, it has become the pretion for tax and financial reporteminent, locally owned yet
ing purposes as well as litigation
and family law. He has over 19
globally adept accounting and
years of experience as a fundaconsulting services firm in
mental valuation expert, investNorthern California. The comment banker and financial anapany is known for its outstandlyst. His broad background
ing service to high net worth
Joe Orlando
individuals and families, entreincludes corporate finance, mergpreneurs, and some of the most
ers and acquisitions, investment
innovative organizations in the
banking, business development
and corporate strategic planning.
greater Bay Area. It offers a comJared Lauber, Senior Manprehensive array of integrated
ager, Business Risk Services –
services, including tax consultJared has 12 years of experience
ing and planning; investment
advisory services; family office
delivering a range of business risk
services, leading and creating the
services; audit and financial
internal audit function, performreporting; and outsourced
ing enterprise-wide risk assessaccounting, controller and CFO
ments and implementing interservices. Additionally it delivers
Jared Lauber
nal control and cost-savings
strategic business management,
programs. He is a Certified Internal
risk management and business valuation
Auditor, a member of the Institute of
services, Microsoft Dynamics GP impleInternal Auditors (IIA), and is nominated
mentation and customization services,
to serve as the 1st VP for the San Franand specialized research services for the
cisco IIA Chapter.
wine industry.
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© 2009 North Bay Business Journal. Reproduction in any form prohibited without permission.