Right now, many business owners are reflecting on 2010 and planning for 2011. So, what better time to commit to a few success-focused New Year’s Resolutions for our businesses, specifically financial strategy resolutions.
After all, that’s what we at BottomLine Growth Strategies are expert in.
Resolution #1: Prepare Your Budget and Projections — NOW
Resolve to develop a budget and projections for the upcoming year.We find that many businesses do not have a budget, and that means they are really running by the seat of their pants. They feel it too. It’s stressful. We want you to not only create a budget, but to update it throughout the year to forecast ongoing business conditions. In the new normal economy, you must continue to evaluate the conditions of your businesses in order to update revenue. Your budget should be flexible enough to accommodate multiple scenasrios.
What’s the payoff?
When you declare a goal and track performance against it, you’re more likely to achieve it.
Your budget and projections will help you plan for cash needs. Growing companies need to understand the impact of their growth on available cash. Typically, cash is constrained during growth phases, and banks don’t really like to get calls requesting a credit line extension the day before payroll.
Resolution #2: Implement a Monthly Cash Flow Process — and Micro Manage It
Do this after your projection process. Then, update cash flow data at least monthly so that you understand how the week’s and the month’s cash flow will impact your overall cash position. Doing this also helps you understand the future implications of current changes in your business.
Resolution #3: Watch Your Working Capital — Like a Hawk
Working capital is your accounts receivable from customers minus your accounts payable to vendors and inventory. Just by managing these three items (customer invoices, payments to vendors, payments for inventory), you can improve your cash position significantly. We find that many business owners struggle with getting invoices out on time. But by speeding up getting invoices out, cash will come in more quickly. It might just make the difference when payroll time comes around.
Stretching out payments to others provides cash.
Asking for money due to you, as soon as possible, provides cash.
Resolution #4: Insist on Timely, Accurate and Monthly Financial Reports — No Matter Who Complains
Your accounting department should be providing financials no later than ten to fifteen days of the close of the month. These financials should include, at a minimum, a Profit & Loss Statement (compared to budget), a Cash Flow Report, an accounting of Aged Receivables and Payables.
Resolution #5: Develop and Mind Your KPIs (Key Performance Indicators)
We’ve found that what gets measured, gets action. This is even more true if performance incentives are in place. Your KPIs should include financial, operations and sales metrics – and, of course, what you measure may vary depending on the type of business. As examples: What is your average “call wait time” for customers put on hold? What is your client retention rate? How about the time it takes to close a sale and your sales close ratio? It’s best to compare these numbers to an industry benchmark if this is available. We provide in-depth industry benchmarks for our clients – and you can also get industry data with our complimentary Insider’s Industry Guide.
Resolution #6: Track Profitability by Segment or Product — and See What You May be Missing
Most businesses offer more than one product or service. However, we’ve found that few actually track their profitability that way. Tracking profit and loss by segment assists with pricing, with planning for changes in the product mix and more. Wouldn’t you want to know if one of your products is losing money and bringing down your overall results? We thought so.
Resolution #7: Diversify Your Customer Base — and Avoid Dependence
If your business revolves around one large client, you will be in big trouble if that client leaves. Furthermore, you are beholden to them in an uncomfortable way. Losing them would be devastating and you may give in to conditions you normally would not. Additionally, if you’re looking to exit your business in the future, having all of your eggs (or a good portion of them) in one customer basket hurts the value of your business.
Resolution #8: Think Twice Before You Cut Your Price
If you’re one of those leaders who made the tough decisions over the past year to cut expenses in order to right-size your business and align with economic conditions, we applaud you. However, you can’t cut your way to prosperity across the board. You must focus on growing your revenue profitably and, therefore, you have to be careful what kind of price cuts you make. For example, we often see sales teams who want to discount pricing as a “knee-jerk” reaction to lagging sales. What is often missing in their request to discount is information about marketing conditions, competitors and the customer. As a business owner, you need to analyze this data before you cut prices.
Resolution #9: Assess Your Financial Team — OBJECTIVELY
We have worked with many companies that have upgraded operations and sales teams, but have spent no resources on the financial department. In fact, we met recently with the owner of a $15MM company who hadn’t received financial statements for six months! The bookkeeper who had been with the company since the beginning was still in place, and while certainly a very good and dedicated employee, was not up to the task of high-level financial strategy. The company desperately needed more insight. Strong financial management and strategy will help this company become even more successful (and sooner) by providing a clear picture of current status and a clear vision for the future, plus help the owner capitalize on market opportunities. If your financial team is not providing you with the items listed in these resolutions, it IS time for an upgrade.
Resolution #10: Consult Financial Professionals — without Paying an Arm and a Leg
It is a common misunderstanding that high-level financial experts, either CFOs or Controllers, are only available on a full-time basis. In fact, part-time, outsourced and expert CFOs are what we bring to the business strategy table every day. Getting experienced support early in your company’s life cycle, and on a part-time basis, will help you not only a put a strong financial foundation in place now, but also enable you to add new financial processes and strategies as they are needed so that your company can grow profitably.
We’re confident that these New Year’s resolutions will make a significant difference in your bottom-line. But we do know that it’s tough to do it alone.
Most business owners wait far too long to create the financial foundation and strategy they need for success. As a result, they don’t have the data they need to make good decisions, and even if they do, they don’t always have the financial insight they need (what to do with the data) to capitalize on opportunities that would give them growth they deserve.
We think you might be surprised at how far even a little CFO expertise can go in forwarding you toward your goals, becoming attractive to investors, understanding what is happening in your business today and developing a roadmap to profitability.
All it takes is a phone call.
To happiness, peace and prosperity in the New Year!
Carol Coughlin and the BottomLine Guides
P.S. We hit you hard in this issue to get you to see what every company must have in place for smart, sustainable growth.
What we know is that financial strategy is an area of expertise that (at least 95% of the time) is outside the business owner’s core competencies – and it should be. After all, you didn’t start your business to sit around and “do the numbers.” But that’s exactly why we started ours.
BottomLine Growth Strategies was founded on Carol Coughlin’s passion and mission to give small- to mid-size business owners the same high-level financial strategy guidance usually reserved for large corporations. So if you can keep these resolutions without outside support, that’s great. If you can’t, you’re not alone. And it’s time to get to it.