Business MAnagement

Are you maximizing your business’ profits?

There may be many options to choose from that can help you improve profitability. Analyse your strengths, weaknesses and capabilities for ways to improve. Here are a few measures that can have a surprising impact on profitability.

1.     Examine key performance measures: Falling sales, shrinking working capital, and rising costs are key indicators to monitor.

2.     Manage your costs: more effective purchasing can improve margins. Eliminate waste of materials and time.

3.     Review sales to long term customers: you may find out some customers are not as profitable as you thought.

4.     Increase productivity: Staffs are the largest cost centre in most businesses. Increasing employee effectiveness can improve profits.

5.     Review sales: ensure you are targeting the most profitable customers with the right product mix.

In most cases, a combination of these measures will give a boost to profitability. Incorporate these measures into your business plan and review frequently.

Be diligent and execute, execute, execute.

Business Strategy

Strategic Thinking

True Strategic Thinkers do not spend too much time on day-to-day activity.  Here are some ways to become the strategic leader your business needs.

1.     Anticipate

Don’t just focus on what’s directly ahead. Look for opportunities to take advantage of potential new ideas at the leading edge of your industry. Use external networks to search for ideas beyond the current limits of your business.

2.     Think Critically

Don’t just follow conventional wisdom and play safe. Critical thinkers question decisions continuously. To strengthen this skill within the company challenge managers to examine root causes of problems, test current mindsets, and work to eliminate bias in current decision processes.

3.     Interpret

It is important to eliminate ambiguity but don’t rush to fast and possibly wrong decisions. A strong strategic thinker seeks and processes information from several sources before developing a point of view. Encourage the organization to use multiple sources of data and challenge prevailing assumptions for problem solving.

4.     Decide

Don’t fail to decide because of “analysis paralysis”.  Develop decision making processes and have the organization follow them. Frame the problem and balance the need for speed with quality answers. Leave perfection for others and take a stand even if information is incomplete. Achieving consensus is rare so lead the team by acting.

5.     Learn

An organization learns from successes and failures. To continue to grow owners should encourage rigorous debriefs of decisions to learn improved performance. If mistakes are made, change directions as soon as errors are discovered.  Learn from successes and failures. 

No manager has elite ratings in all of these skills but nevertheless you must strive to fill whatever gaps exist in your skillset.

Business management

Should you use debt financing?

What is Debt Financing?

Debt is borrowing money from an outside source at an agreed-upon level of interest. Although the term tends to have a negative connotation, startup companies often turn to debt to finance their operations. In fact, even the healthiest of corporate balance sheets will include some level of debt. In finance, debt is also referred to as “leverage.” The most popular source for debt financing is the bank, but debt can also be issued by a private company or even a friend or family member.

Advantages to Debt Financing

1.     Maintain ownership: When you borrow from the bank or another lender, you are obligated to make the agreed-upon payments on time but that is the end of your obligation to the lender, this may provide less outside interference.

2.     Tax deductions: This is a huge attraction for debt financing. In most cases, the interest on principal payments is classified as business expenses and thus can potentially lower taxes.

3.     Low Interest: In today’s economy, the low cost of borrowing makes it an interesting way to finance expansion without using up capital reserves.

Drawbacks to Debt Financing

1.     Repayment: Obviously there is an obligation to repay the lender; unfortunately even if your business fails, you will still have to make these payments. Also if you are forced into bankruptcy, your lenders will have claim to repayment before any equity investors.

2.     Impacts your credit rating: It might seem attractive to keep bringing on debt when your firm needs money, a practice knowing as “levering up,” but each loan will be noted on your credit rating. And the more you borrow, the higher the risk to the lender, and the higher interest rate you’ll pay.

3.     Cash and collateral: Even if you plan to use the loan to invest in an important asset, you’ll need to make sure your business generates sufficient cash flows to cover loan repayments.  Also the business may need to put up collateral on the loan in case you default on your payments. 

The option to debt financing obviously is to increase the owners’ equity in the business.  Since that may require the disposition of other assets to raise the cash, the most practical method may be adding to debt as long as the company can manage repayments and debt levels are prudently managed.

Business Planning

Discussion on Business Continuity Planning with Patrick Rivait, President, Rivait Business Solutions, Inc.

This article is the third and final of a series prepared by Patrick Rivait and presented in this forum. I appreciate Patrick's contribution as these articles have added another dimension to this blog.
Patrick specializes in Business Continuity Planning and I recommend any reader contact him directly for advice on this valuable service. Patrick can be reached at 519.984.6633

Does my organization need to buy a software solution?

As education and awareness about BCP increases, so too, does the availability of software solutions to assist in the process.  This leads to the ever important question – does my organization need to spend money on software when we already had a tough sell to convince management to undertake a BCP Program?

There are certainly advantages to considering the purchase of a software solution to assist in the BCP process within an organization.  A well-designed solution will provide a solid starting point for organizations wishing to undertake the exercise independently, guiding the team through the process and providing some valuable insights into the overall scope of things to consider.  Often the solutions provide baseline templates that provide a great “jumping-off point” for organizations to begin their BCP Program.  Many solutions support task tracking and management, as well as providing notification functions.  Some solutions are now available as a Software as a Service (SAAS) offering -- these solutions are hosted in the cloud and would be readily available in the event of a crisis occurring that impacts access to internal systems and data.

Most solutions provide security that allows an administrator to restrict access to information based on roles within the organization, and will also allow specific users the ability to only read/view the data whereas others would have the ability to create/edit information.

While there are many advantages to commercially available solutions, there are also several disadvantages to consider when considering the purchase of BCP software solutions.  If presented with “out of the box templates”, there is a risk that the templates may not meet the needs of the organization but not be customizable so the software will be perceived to be of no value, otherwise if customization is possible it may come with a lofty price-tag that ultimately add to the total application and BCP Program costs.  If there is a steep learning curve associated with the setup, use and ongoing administration of software this too may add to the perceived total cost of ownership that will incrementally impact the cost of what is already considered as “an unnecessary expense or exercise”.  Another risk of relying on software solutions is that it creates the perception that BCP is simply an exercise of ticking boxes and filling in blanks, undermining the true value of the planning and analysis process and ultimately minimizing the quality of the outputs.

While there are several pros and cons to acquiring software to support an organization’s BCP Program, the following should be considered when faced with deciding on this potential software acquisition:

1)      Does the organization already have sufficient resources to create and maintain the templates, data and plans required for the BCP Program using basic office software (i.e. Microsoft Office suite)?

2)      How much does the solution cost, and do the benefits of using a software solution outweigh the acquisition, implementation and maintenance costs?

3)      How complex is the organization? (A small and simple organization may be less likely to require a software solution than a large and complex one).

4)      Will input be required from multiple or geographically dispersed units?

5)      Will complex data collection processes, tasks and notifications be required for the program to be successful?  If so, does the organization have the current infrastructure and skills to support this?

6)      Does the organization require reporting capabilities, data security, project management and tracking, and versioning of documents?

7)      What are the auditing requirements for the BCP Program?  Will these audit requirements be more effectively supported using a commercial software solution?

8)      Would a software solution provide a reasonable ROI  by streamlining the process or reduce the costs associated of the coordination activities, design, and maintenance?

When contemplating a software purchase to support a BCP Program, the organization should invest some up-front time to consider the options.  Identify a small committee to work on testing and grading alternate solutions in terms of implementation cost/complexity, functionality, overall performance, and software support to identify which solution would be meet your needs.  Not only will this help ensure the “best fit” solution will be selected for the program, it will also ensure that there is buy-in from the user community for that solution and likely reduce the change management efforts required to launch the tool and integrate it into the program.

Unfortunately, there is no easy or best answer to the question of whether or not an organization needs a software solution to support their BCP Program.  As a BCP leader within the organization, a thorough understanding of the requirements, constraints and challenges you face, and a thorough review of the alternatives will help make an informed decision as to what will best contribute to the success of your BCP program.