Monday, June 15, 2015

Succession Planning

Are you ready to pass the baton?

How much time have you spent recently preparing your organization for the future with a succession plan?

Too often owners of business have given no thought to how their business continues past their time or even who should be in line for succeeding others in key positions.

There is a fine line between structuring an organization so strong back up is available for all key positions and being top heavy with management staff. While it is important to develop and maintain an organization chart that identifies potential replacements for key positions it is a plan that must be kept confidential among only a few very senior managers. Clearly if the succession plan was broadly known the group of subordinates would constantly be chafing at the bit to move up the ladder. 

The succession plan should be updated regularly. Performance of employees change, new stars arise and training of key individuals to broaden their experience becomes important elements of the plan to maintain.

In small family organizations succession plans may be even more important. The owner may have family members who she/he would wish to carry on the business but are they qualified? Are there competing siblings who vie for the role of president and how does the current owner resolve that issue?

A well-developed plan not only provides for a smooth transition when needed but also can be a critical tool in situations that result from an untimely injury, illness, or death of the owner. You do not want a vacuum created from the absence, for any length of time, of leadership in the business. A prolonged absence of an identified leader can destabilize the business and lead to losses and in extreme situation lead to the collapse of the business.

The owner or president of the business has the fiduciary responsibility to be proactive and protect the business and ensure survival is optimized. That means an active role in preparing for his/her exit and change in other key management positions. 

You never know when there will be a need to pass the baton.

Monday, June 1, 2015

Financial Monitors to Focus on

You don’t need to be a math wizard to understand which numbers can tell you how well or how poorly your business is doing.
But you do need regular financial updates and the discipline to sit down and check the key performance indicators that matter most: sales, profit margins and cash flow.

Modern accounting software makes it easy to generate financial statements so you can perform some quick calculations to check the financial health of your business.
Here a few key areas that should be monitored monthly to enhance the opportunity of success.

1. Growth
Are your sales and profits increasing or decreasing year-over-year? Is there a trend?

2. Gross profit margin
Indicates the profitability of the business and reflects your control over cost of sales and pricing. You may want to compare this ratio with prior financial periods or industry data.

3. Inventory turnover and Customer Base
Measuring the number of days it takes to sell inventory allows you to adjust your pricing or marketing. A low number means stock is being sold quickly. In addition to profitability, a growing customer base is a sure sign that you are effectively reaching your target market, and reaching your target market is what your business is all about. The long-term growth of your company is tied directly to your ability to not only reach your customer base, but to expand it to accommodate your long-term goals.

4. Liquidity
The most common liquidity ratio is the current ratio, the ratio of current assets to current liabilities. This ratio indicates a company's ability to pay its short-term bills. A ratio of greater than one is usually a minimum because anything less than one means the company has more liabilities than assets. A high ratio indicates more of a safety cushion, which increases flexibility because some of the inventory items and receivable balances may not be easily convertible to cash. Companies can improve the current ratio by paying down debt, converting short-term debt into long-term debt, collecting its receivables faster and buying inventory only when necessary.

These are a few of the measures to check regularly. I hope the comments help.