FINANCIAL STABILITY
The financial stability of the current economy seems like nothing more than an endless rollercoaster ride that is quickly approaching another “drop.” It's getting harder to prepare for all the twists and turns that each day brings. Every loop causes your stomach to turn, and sometimes it even feels like your going to lose it entirely.
However, as dim as it may look, there are things you can do to prevent financial disasters in your business. In today’s economy, society has become accustomed to the “buy now—pay later” way of living. Unfortunately, this easy use of buying everything on credit makes it nearly impossible to build a deep foundation.
Building a stronger foundation is the first step in overcoming and preventing a crisis in your business. Before building a skyscraper, contractors, engineers, and designers must plan properly when it comes to building a stable foundation. The infrastructure must be able to hold the weight of the building, and be able to withstand earthquakes and other threats. The building must be safe and built to last many decades.
Learning how to build a strong foundation takes time, experience, work, persistence, dedication, and planning. Here are some suggestions on how to build a stronger foundation for your business.
Management Accounting and Key Indicators
Manage your business by the numbers. Management Accounting, or Cost Accounting, is the key to the success of every business entity. Company owners need to understand how to use and manage their accounting systems properly. When making critical decision, the more you know, the more profitable you will be. This is why it is important to work with an accounting firm that has experience in Management Accounting.
It is also important to understand key indicators. Key indicators help business owners better understand the health of their business. For example, a few of these may be the current ratio, debt-to-equity ratio, and working capital. These indicators can be adjusted, and dialed up or down as needed to stay ahead of competition and manage the business more profitably.
Management Accountants help you understand these key indicators and teach you how to use them to build up financial reserves. Additionally, when you make a decision for the company, you will know how it will affect the profitability and bottom line of the business. For example: when hiring an employee, increasing advertising efforts, purchasing or leasing equipment, or inquiring about a new business loan.
Many companies make big decisions without consulting with their accountant to find out the true costs associated with that decision. Often, business owners are overly optimistic and unrealistic about the future of their company—they are later hit from behind unexpectedly when the market shifts. Management Accountants can help you avoid these risks and help you to plan for the future.
Communication & Continuous Training
One of the biggest problems I see in most businesses is the lack of communication. Whether it’s between departments, bosses and employees, or customers and employees, it can create many problems.
You can increase profits dramatically by communicating regularly and frequently with each department and with your employees. Hold weekly and monthly meetings to gain insight from each department. Listen and learn from your employees.
The diagram below demonstrates the impoortance of communication. When you communicate often, your profits will increase as each department comes closer together
Sales & Marketing departments should be communicating with the other departments about the needs, wants, and values of their customers. What products and services are your customers purchasing or not purchasing? What marketing strategies are working? Are customers requesting for other products or services that you may be able to provide?
By communicating this information to the production and accounting departments, new products can be developed and more efficient business systems can be established.
The production department should also be communicating with the Sales & Marketing and Accounting departments to improve performance and evaluate what changes need to take place for developing new products and services, or for improving existing ones.
Once the Accounting department has gathered the information it needs, costs associated with each new change can be evaluated to understand how it will affect the profitability of the company. As the accountant(s) meet with each department, they will be able to more effectively control costs associated with the new changes as they take place and give advice that will help improve overall growth and performance.
Continuous training of all staff members is another important factors that can impact the performance of each company. If employee performance is managed properly, company performance will improve as well.
Every employee has a different way of communicating—the more you can learn about their behaviors and the way they interpret, comprehend, perceive, and communicate, the easier it will be to manage them. By understanding your employees better, individual goals can be established to help them increase their performance.
Employees want to be heard and recognized for their efforts. Positively communicate with your employees on a regular basis. Instead of seeking out faults, empower your employees, encourage them, and help them to develop the skills they need to succeed. Show appreciation often; make sure your employees know that you appreciate their efforts.
Employees need to know what is expected of them. Take time to meet with them weekly, provide team training and individual training, send memos, use an internal newsletter, then track and measure their performance. Having systems in place will make it easier to manage the training of your employees and reduce time spent on training costs.
Planning and Forecasting for the Future
If I were to ask you to go on an all expense paid vacation with me next week, but I didn’t give you any other information, what questions would you need to ask?
You would probably ask: Where are we going? What clothes should I bring? Is it hot or cold there? Are we driving or flying? Where are we staying? What’s the plan?
If I answered “I don’t know,” you would probably tell me to take a hike. Who wants to go on a free vacation when even the person inviting them doesn’t know where they are going? In other words, if you don’t have a plan or end destination in mind, chances are you will end-up in an igloo in Alaska dressed in Bermuda shorts.
Unfortunately, this is the way many businesses operate. They have no vision, no direction, and no exit strategy. Is it any wonder why so many businesses fail within the first 5 years?
The first thing is to establish an exit strategy and map out your end destination; make sure everyone in your business knows where the company is heading. Plan ahead for future expenses, like office equipment, and learn how to consistently increase company reserves.