Staying Afloat In Uncertain Times

Monday 3 August, 2009

by Tom Lesnikowski

It is critical to continuously monitor the financial health of your business in both good and uncertain times.

Now is the best time to be on top of the performance of your business, giving yourself the opportunity to fix any operational and financial aspects before they become an issue.
Businesses may fail for a variety of reasons. Some of those reasons are as follows:

• Poor planning
  
• Lack of appropriate funding
  
• Inadequate management of working capital
  
• Poor relationships with key customers and suppliers
  
• Inadequate financial records management

While the above is not an exhaustive list of causes of failure, all are influenced by management. Studies indicate that more than 80% of businesses fail due to poor management.

What is poor management?

Poor management has been described as the inability to recognise that the above factors are affecting performance and to implement strategies and controls to overcome those factors.
Below are some areas you may need to consider and focus upon:

• Poor planning
  
  Have a business plan that identifies your businesses' current status, including the objectives, strategies, operational and financial plans for the future. Regularly review and modify your structure and strategies to reflect prevailing economic conditions.
  
• Lack of appropriate funding
  
  You will need to consider what level of external funding is required and what repayment terms best suit the business. This area directly impacts every size and type of business and should be reviewed on a regular basis, particularly as financial markets themselves go through a period of change.
  
• Inadequate management of working capital
  
  It is critical to manage the key elements of working capital: stock, debtors and creditors. These components of working capital have a significant influence of your cash flow. Sustainable ongoing cash flow is a critical element of the success of your business.
  
• Poor relationships with key customers and suppliers
  
  Customers are your cash flow and livelihood. Reliance on too few customers can be disastrous. It is also important that your customers continue to pay within agreed terms. Ensure you have a strategy in place for dealing with late payers and possibly rewarding those that pay early or on time.
  
  Maintaining positive relationships with suppliers lets you maximise your products and services and can ensure referrals and other business opportunities. How well are you looking after your key customers and clients? Do you have a loyalty program in place? These are some things to consider that can help keep your relationships on track and make sure that your client base continues to stay with you and not jump ship to a competitor.
  
• Inadequate financial records management
  
  Informed and accurate decisions cannot be made in the absence of reliable financial data that is prepared and presented in a timely manner. Regular analysis of your financial status will assist in ensuring that all revenue opportunities are maximised and costs managed for the maximum benefit of your business.

Author Credits

Tom Lesnikowski, Associate Director, BDO Kendalls, Melbourne. For further information contact on phone 07 3237 5967 or visit the web site: www.bdo.com.au 

 

 

Source:ceoonline.com