Business Owner Mistakes: No Timely Review of the Numbers

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Business owners don’t want to look at their numbers. They think things are going well or not going well based on an overall feeling of how the business is doing. I see this all the time, but I don’t understand that mindset. I appreciate their positive thinking, but how do they really know? We need to look at the numbers, check the score, and make corrections.

My advice to business owners is to know their numbers well and frequently compare actual results with expectations, using both the income statement and the balance sheet. Where are we compared to where we’d thought we’d be?

Projections are wrong by definition. We know that, but we’ve made certain assumptions for business growth and profitability. Plus, we generally approach growth as linear with a steady growth path. Growth is never linear. It’s up, it’s flat, it’s down, it’s up, repeat. The trend line is up, but the actual results can look like an EKG. Growth is tricky that way. The stair step growth graph, can make cash planning difficult. So, we need to make corrections based on data and real information.

Business growth is like sailing. Based on our strategy and vision, we know where we’re going, but when the wind shifts, or competition and obstacles get in the way, people or processes can’t keep up processes can’t keep up.  We need to tack back and forth to get to where we want to go. We can only focus on so many things at one time, so use your financials to focus on the right things that make a difference.

To make sensible corrections, it’s imperative to a) have accurate timely numbers, and to b) review the numbers on a frequent basis so we know where we are and where we may need to “tack” to get there.

I’m working with a growing start-up now and things look good. Cash isn’t bad, and sales are pretty good. But, when you look under the hood, the company isn’t hitting their sales plan, payroll is too high, sales expense is out of proportion and cost of sales is too high. Their path needs a correction. Without timely and accurate financial statements, reviewed against plan, they wouldn’t have seen the challenges coming. The Company reviews a “Monday report”weekly and was astute enough to see a dip in a customer’s buying patterns compared to expectation and a dip in overall gross profit. They were able to make some focused changes and get things back on the right track.

Business owners must understand cash flow, gross margin, working capital, the entire balance sheet, and the P & L. Without regular and timely reviews, you cannot plan wisely for the future and develop path corrections along the way.

Tips: Have a process in place to get accurate timely numbers and financial statements. Get to know your numbers. Book weekly and monthly financial reviews on your calendar for the rest of the year now.

Business Owner Mistakes: The Backroom isn’t Operating Efficiently

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What is the backroom?

I consider most of the business process other than the sales and production/distribution processes the backroom.   I generally consider IT, Accounting and Finance, and Human Resource departments the prime backroom departments, and you could include some administrative positions in the backroom as well.

The backroom isn’t seen by the public a whole lot. The processes in practice there can have the appearance of adding little actual customer value, therefore they are frequently ignored. It’s not unusual for the backroom to live by the mantra, “That’s the way we’ve always done it.”

Many business owners I’ve worked with don’t appreciate the backroom at all.  Their attitude is “We are a sales and customer service organization.” But the most efficient companies look at their backroom as value add (if it’s not, they may consider outsourcing many of its functions.) When I consult,  I look at each department in detail–including the backroom–to determine if they are being organized in the most efficient and customer service oriented fashion as possible.

I like to flowchart all the backroom processes using the value map approach with yellow stickies and a white board, noting everything from the receptionist to cash receipts.  I use a checklist and document the current state and then develop a future state.  This exercise always makes things more efficient, but even more importantly gives an opportunity to evaluate if the process adds value and if we need to continue it all.

For example, when I call my doctor’s office, the entire auto-attendant process is ridiculous. “If this is an emergency, call 911.” No kidding. The attendant takes five minutes to get to the right person in an office of only three to four.  Does this “efficient” system really add value to the patients?

Some backroom processes are obviously necessary–keeping the general ledger up to date, processing payroll, paying vendors, producing financial statements, etc.  So when you consider the efficiency of your backroom, be aware that you may not be editing out a lot of tasks–just a few that really don’t add value to the overall business. Then you’ll want to make the remaining processes efficient as possible using simplification and (maybe?) technology (unless it complicates things like the above-mentioned example.)

As you evaluate your backroom processes, this is a good time to compile an operations manual. This can help dramatically over time with training and quality control.  Some companies create an electronic repository of policies and procedures instead of the standard tangible notebook. A secure online version can make it easy for all employees to find, and simple for leaders to update. I  highly recommend including recorded instructions (screen casts) for routine tasks. These videos can be a huge help in training new hires and eliminate some of the need for current employees to do hands-on training for each new person that comes on board. They also help to ensure a consistent, identical process. This improves accuracy and clear expectations. (You know I’m a big fan of checklists, and that is why.)

I just worked with a manufacturer that implemented a 100% final checklist for each production item. It was simple, but effective. Product quality based on customer feedback increased 30%, which in tern helped him increase his gross margin! All because he was attentive to the processes in the backroom.

I’m offering a free Alignment and Backroom Survey below. Take one process in your business or department, work with those involved with a white board and stickies, and simplify it!

Need more help? Contact me.

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