Management
Business Fitness - Is Your Company in Shape?by Tamera Davidson CPA
With our countrys counter terrorism events unfolding, our literal towers of terror, and uncertainties on the rise, our business fitness comes into question. Can our business sustain these uncertainties? How will the recession affect our company? Is it strong enough to be profitable during the upcoming months and maybe years? Is it time to get lean and mean?
It is unfortunate that often times it takes a heart attack or stroke to prompt us into action to become physically fit. Many times the same is true for our businesses. As business caretakers we must assess our current stature and understand what adaptations are needed for our current environment. Both financial and non-financial factors are important to the fitness of your company. Here are some 4 pivotal points to ponder to help you understand your business current fitness status and what needs to be done to become more fiscally fit.
Financial Accuracy: One of the initial ways to begin the fitness process is in capturing accurate and timely financial information. This is that doctors visit that you make to be sure all is in good working order before a fitness program is put in place, limiting risk of injury. Likewise, if you are able to rely on the validity of the financial reports you can limit the risk of making wrong decisions.
Questions to help you measure your companys fitness are:
Do your numbers have integrity?
How often is the financial information reviewed either internally or externally?
How often does management receive financial statements?
Companies are often so concerned with the day-to-day financial maintenance that they give little thought to the monthly outcome necessary for effective decision making. Often times the missing link is the ability to utilize the automated system to its fullest capacity or even to a large degree. Along with that is the lack of physical procedure linking one department with another. These are both elements of business processes.
Business Processes:Frequently referred to as fiscal management, it measures the efficiency of a company. It incorporates both the manual and automated internal procedures. A company can have a powerful automated system but if few know how to use it, it becomes ineffective and leads to inefficiencies. There are also manual operations that must coincide with the automated system. As an example, in an inventory environment, once inventory has been ordered and received manual check-in and acknowledgement given to the accounting department is necessary before payment can be made to the vendor. All of the systems must work together in order for the company to run in its highest capacity.
Key Financial Performance Indicators: Before you fall asleep at the treadmill remember the goals that you have set, to be fit.
There are key factors that you can exercise in assessing your financial strength:
Comparative Income Statement This will give you an understanding of the growth over the past year. Was there one particular revenue stream that increased faster than the others? Did the amount of revenue growth meet your expectations?
Gross Profit Ratio This is the difference in total revenue ratio at 100% and direct cost, (or cost of goods sold). Direct cost are those cost that management sees a direct relationship to the revenues. The ratio measures the efficiency of direct cost. If the ratio increases it means that cost management is becoming more efficient.
Operating Income The measurement of profitability after selling, general and administrative overhead costs, the true earning capacity of the company. Are the sales and administrative costs in line with the previous year? This is important in the attempt to become lean and mean. These are a few of many financial performance indicators that can be helpful to a company in understanding their business success but like the beginning of a fitness program, starting slow is a healthy way to begin a lifelong change in fitness.
Setting Goals: Finally, like a fitness program, the measurement of business success can be hard to determine without setting specific goals. This can be structured as an outline of issues in your business causing inefficiencies and possible profit leaks. Like a roadmap, it is much easier to get to your destination when you know the most direct route or in many cases the best maintained road to take. Once that roadmap of goals and strategies are made be sure to monitor the progress. Accountability can inspire one to move beyond their comfort zone into a more rewarding experience. Moreover, vision for the future must be an element not forgotten. Forecast for growth and or stability and dont forget those unexpected events.
Webster defines fortitude as the strength to bear misfortune, calmly and patiently. Is your business fit to weather the storms? Building a company with financial fortitude can give it the stability and growth to emerge to the next level of business success even during times of uncertainty.
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Tamera Davidson, CPA, is a business strategist, speaker and workshop leader. Her speaking engagements and workshops focus on best financial practices and non-financial functionality. She can be reached at (703)406 -2727 or tsdavidson@profitprofiler.com.
Motivation