Business Management

The cries of business re-engineering, cut backs and rationalisation are not unusual in the times of crisis. With the global economies hitting the buffers in 2008 the all too familiar stories of the 1990 mini-recession and the early 1980s deep recession are filling our news and media. The familiar cost cutting, getting back to basics, entrenchment and safe play is the norms of today but the reality is businesses should have been taking regular review of their operations, costs and strategies before the economical conditions forced their hand. In theory a well-managed business should have no excess baggage, run a lean operation and be focused on its strengths. Does this mean most businesses are running inefficiently or are badly managed and only a crisis in economy or business focuses the management mind? Business grooming is not just a tool and approach for crisis management but it is a process sensible business leaders should implement in the good times. What is business grooming? Business grooming is the process of implementing sound financial and business control systems in an organisation in order to maximise the return on investment and increase shareholder value. A well-run and managed business provides secure employment, supplies best in class product or service, and delivers value for money for both customers and investors. Why would you need business grooming? Apart from the sensible approach to business, business grooming forces companies to review their strategy, process, structure, cost base, focus and financial discipline. Any business that needs funding for growth or has hopes of IPO or profitable trade sale would have to demonstrate sound business practice to their potential investors or lenders. Business grooming enables companies to recognise their strengths, identify opportunities, create business plans that withstand financial scrutiny and enter new ventures or markets in a measured and low risk manner. Smaller companies have become so adept at responding to crisis that management-by-crisis has become the order of the day. Whilst senior managers focus on fire fighting and managing one crisis after another, the management time is not spent on strategic thinking, planning for the future and managing change or adapting to new environment. Business grooming helps companies to anticipate crisis rather than react to it, reduces waste by focusing on sound decision making process, and nurtures innovation so that companies can take advantage of new opportunities presented to them. depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone Business grooming also addresses the financial practices of the company, helping to present a professional and well thought out business plan to potential investors and lenders therefore increasing the chances of new funding for growth and survival of the enterprise. Smart business leaders do not wait for a financial crisis or their planned IPO/business sale to implement sound business practices. From day one, you should be thinking like an investor or a potential buyer for your business. Think about the areas you would investigate if you were buying this business. Consider the questions you would be asking if you were signing the cheque to buy the company and then think like your worst kind of nightmare awkward customer. Now you are thinking like your own worst critic. Most SME sales are unplanned, which means they are a response to an event which is outside of owners control. The top 3 reasons for SME sales are: 1. Divorce. 2. Financial crisis. 3. Death or Departure of key business partner. With the exception of a legally questionable prenuptial agreement, there is very little preventative measure business owners can take to insure against forced sale. Therefore you should run your business as though you were going to sell it tomorrow, with auditors arriving at 8am in the morning. Only this type of discipline can ensure surviving any possible crisis and maximising the value of your business should you ever be forced to sell it before your planned exit. This approach to business management creates a sense of urgency in your business, energises the organisation and motivates business managers to go-beyond the call of duty to ensure organisational success and management excellence. Business grooming is not distress management and will prevent management-by-crisis enabling companies to manage change, respond to prevailing market conditions and secure the necessary funds to thrive.

Your Business

Many of the business owners I talk to believe that the first thing the bank will look at when they have applied for a loan is the bottom line of their profit and loss statement. They believe that the biggest question the bank will ever ask of their business is "Are they making a profit?" But this widely-held belief couldn't be more WRONG. Profits mean very little without cash flow. Cash is king and it is the bank's first consideration when assessing a loan application. Why? Because profits don't repay loans - cash repays loans. Because cash is the fuel that every business engine runs on. Because cash is like oxygen to your business - without it, the business dies. I think I've made my point. But I don't believe you can ever over-emphasise the importance of having a cash management plan when you are running a business. I have personally seen numerous profitable businesses fail because they didn't have a plan in place to manage their cash flow. Worse yet are the failures caused by business owners that simply don't have a clue about cash flow management at all. And when a business has decided it needs to borrow money, it is typically because there are issues with the cash flow of that business. That doesn't mean it's not a good business. That doesn't mean that the business doesn't have good management. It simply means that a large portion of the issues businesses face come down to being able to manage their cash flow. Now don't get me wrong, a business does need to be turning a profit - no business can survive by selling for less than their costs - but business owners need to change their mindset when it comes to profits and realise that there is a second, critical element to running a bankable business - knowing how to manage cash flow. That is precisely why your business plan needs to include three-way financial projections that are being used on at least a monthly basis as the backbone of your business budget. Simply going through the process of creating a three-way financial projection (or having one done for you and then getting it clearly explained to you) will help you make better management decisions. You need to know, month to month, how you are performing against your projected profit and loss statement, balance sheet and statement of cash flow. This can be quite complex depending on your business type, so don't be afraid to get help preparing or understanding the projections. depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone depresszone At a basic level, having a cash management plan means having an understanding of the 7 key drivers of any business' cash flow. Below, I have listed each of the 7 Cash Drivers, followed by some questions and observations that you should take into consideration when preparing your plan for managing the cash flow of your business. Remember, if you don't have a handle on your business cash flow, you're unlikely to get the backing of your bank. Even worse, you're unlikely to have a business that will stand the test of time and be consistently successful. Sales Growth Sales volume is the single most influential cash driver - it is the stone that creates ripples throughout the pond of your profit and loss, balance sheet and cash flow. Most people don't understand that sales growth, while naturally generating cash (eventually), also requires cash expenditure to achieve - think cost of sales, inventory, receivables, etc. Growth requires cash. Fast growth requires even more cash. That's why "pushing volume" for volume's sake is rarely a good idea. One of the most common ways for a business to run out of cash is by growing sales too quickly (often called overtrading). Do you know what a sustainable growth level is for your business? Gross Margin Gross margin is what you have left after you've covered your direct product or service costs (often called cost of goods sold). It is measured as a percentage of sales and shows how many cents out of each dollar you have left to cover your operating costs, taxes and, most importantly to your banker, your loan repayments. Oh, and if you want to pay yourself, you're going to have some gross margin left over for that as well. It's here where you have to ask yourself if you are charging enough for your products or services. Sometimes, the answer to this question will be different for various products and services and even for individual customers of your business. You should know what is going on with your gross margins so you know whether or not what you're selling is actually generating a satisfactory return to make it worthwhile selling. What's the point of selling more (sales growth) if what you're selling won't cover your operating costs? There are only two ways of increasing gross margin - increase prices or decrease cost of goods sold. Operating Expenses Sometimes referred to as "overheads", this includes all of the expenses that are not directly related to providing your customers with the product or service you sell - the costs of simply being in business (rent, electricity, telephone & internet, salaries & wages - you get it). Remember, it's a lot easier to allow your operating expenses to blow out than it is to rein them back in. Careful measurement and analysis of these expenses is critical to your business cash flow. There are really two things to beware when it comes to operating expenses - not monitoring them at all and, as a result, consuming much more cash than is necessary to keep the business running or viciously cutting back on expenses to the extent that you do permanent damage to the long-term operation of the business (think cutbacks in R&D, training, advertising, personnel). Accounts Receivable When you offer customers payment terms other than cash in hand, you must consider the impact on cash flow of the length of time it will take you to convert the resulting accounts receivable into cash. Do you know the receivables days on hand for your business? For each of your customers? How does this compare to the payment terms allowed by your creditors? How does it compare to your competitors? Your industry? Do you produce (and use) an aged debtors listing to use in the management and collection of your receivables? Increases in your accounts receivable balance are a USE of cash. Decreases in your accounts receivable balance are a SOURCE of cash. Accounts Payable Consider your accounts payable in terms of days on hand - how many days, on average; does it take your business to pay its various suppliers? Balancing this is a key to cash flow management. You want to take full advantage of the payment terms offered by your suppliers, but you don't want to take things too far and give your suppliers a reason not to back your business because you don't pay them as agreed. Can your business get longer or more favourable payment terms from its suppliers? Alternatively, can you get a discount from your suppliers by shortening your payment terms with them? Increases in your accounts payable balance are a SOURCE of cash. Decreases in your accounts payable balance are a USE of cash.

How a Virtual Business

There are numerous studies regarding small-business failure rates. Unfortunately, the findings are often vague because, unlike publicly held corporations, most private companies do not report their financial results. One thing is for sure, businesses fail in large numbers, especially small ones: According to a September 2009 "U.S. Small Business Administration Office of Advocacy Report" in 2008; there were 627,200 new businesses, 595,600 business closures and 43,546 bankruptcies. A major culprit as of why businesses fail, covered in detail in the book "E Myth" by Michael E. Gerber, is because business owners neglect to put systems in place. The owner-manager has a tendency to work IN her business, rather than ON her business. With the advent of technology, this trend has increased exponentially, especially for those companies who do not adapt to the rapid changes taking place in the business world. To put it succinctly, business owners who fail to adapt, still run their companies based on the Industrial Age business model, rather than the new the Information Age and Knowledge Era. This is a major conflict and speeds up the business failure because if you talked in today's terms, it would be like using telex machines and telegraphs to conduct day-to-day operations. The solution is then to bring these existing businesses, or create new startups using new age solutions. This means building a business using efficient and inexpensive, sometimes even free, cutting-edge technology readily available for the savvy business owners who is ready to adapt and move their existing or new business ventures into the Information Age and Knowledge Era. Without a doubt, businesses who have adapted have seen huge leaps in progress and efficiencies based on technology. Over the past decade, technology has helped entrepreneurs leverage their time, create process efficiencies, reduce costs massively, and allowed them to maximize business profits to levels never seen before. To date, most of these major technological overhauls have taken place in big corporations with deep pockets. What better proof than to see how their stock values keep raising, even though the rest of the population is seeing one of the worst economic crisis this country has ever seen. 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup 3manup The question is then, how do we get small business owners, home based business and new incoming entrepreneurs to embrace and take advantage of the endless benefits technology offers? The answer lies in converting these small business ventures, into virtual businesses. Technology, without a doubt, has changed the playing field and has allowed smaller companies to compete with larger corporations on the same level. In this new economy, it is no longer the big one, but the fast one that wins! A virtual business allows a company to be geographically dispersed. It allows it to meet and support its customers wherever they are located. Employees are no longer constrained to a physical office, but instead, they can work from anywhere, at any time, at any pace; all accessible, networked and coordinated via internet applications. As you can see, with a virtual business, all you need is a computer and internet access to get you going. Anyone can start a virtual business in minutes. You don't need major start up capital. You don't need investors. You don't need to risk months or years trying to break even. You don't even have to gamble your savings. You can implement sophisticated systems. You can hire the most qualified personnel from anywhere in the world. Most importantly, a virtual business allows you the free time to have a personal life too!