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The Online Advisor - September 1999
Troubleshoot your business
The old saying, "An ounce of prevention is worth a pound of cure," is especially true in business. Identifying problems before they become crises can make the difference between a business that succeeds and one that fails. Every business owner or manager should develop a system that gives him early warning of trouble in the business.
What to monitor and at what frequency will depend on your kind of business. A manufacturing business will be checking different numbers than a service business. As owner or manager, ask yourself what numbers are important in your company for industry comparison. How often should you check them for signs of problems?
Don't let the important numbers be lost in a sea of data; learn what information gives you the clearest picture of how your company is doing.
The information many owners and managers find essential includes the following:
* Cash flow
A healthy cash flow is the life blood of any business. You must be able to foresee cash shortages and prepare for
them. Short-term, last-minute borrowing can be expensive for a company, and bankers are not impressed by crisis-style
management.
On the other hand, when cash flow in a company is abundant, it is management's responsibility to be sure large amounts are not left in noninterest-bearing accounts.
* Expenses
What and where a company spends for materials, supplies, and operations should be examined at least monthly. Where
there are variations from the norm, management should investigate further. Large single items should be scrutinized,
as well as areas open for abuse - such as travel, meals, and entertainment expenses.
In paying invoices, the company should be taking advantage of discounts where appropriate.
* Receivables
If your receivables are getting older and older, your customers are using you as their banker. Monitor receivables
closely to determine that the number of days' sales outstanding is not increasing. A 30, 60, 90-day receivables
aging schedule should be reviewed monthly and late payers contacted soon and often.
* Inventory
Watch inventory levels closely. You want to be able to fill customers' orders, but you do not want inventory to
be so large that portions become obsolete. Also, be wary of getting too much money tied up in inventory, especially
through slower sales periods.
* New business, new orders
New business signals a healthy, growing business. Monitor your marketing efforts to see how much new business is
being generated. Follow through to see that new business is handled timely and efficiently so that new customers
are not lost due to poor service.
* Completion time
Keep tabs on how long it takes your company to make a sale, fill an order, or complete a service job. If completion
time begins to increase, your costs are likely to increase, too, while profits decrease.
Find out the cause of delays and correct the problem. If you're a manufacturer, look for production or supply problems. If you're a service company, perhaps delays are caused by poor scheduling of personnel.
Check back orders; customers get very unhappy with delays. Monitor the workload in your company so you can make adjustments early enough to keep customer goodwill.
* Seek assistance if necessary
Some companies with problems in these areas are not able to design corrective measures without outside help. The
time and money spent for professional assistance will come back in greater profitability.