If your business is suffering from a lack of cash flow, debt, and a general lack of customers, it’s time to perform a business diagnostic and honestly evaluate what is going on in your business. There are many reasons that a business can be struggling, ranging from a lack of a business plan (or a poor business plan), customer service problems, poor management (or micromanagement). The products and services may also be to blame, e.g., customers don’t want what you’re selling, the price is too high, or your products aren’t substantive enough.
If you want to know what’s going on with your business, ask your employees, customers and vendors. And most importantly, you have to be able to take the truth —as they see it or perceive it —and really hear what they are saying. It is extremely difficult for us to be objective about our own businesses/organizations. We are often able to diagnose and identify what is going on in other organizations, yet we cannot see the same things in our own. We are too close physically, emotionally, financially, and in every other way. But remember that no business owner, manager or entrepreneur knows everything about everything.
If you are struggling and are not yet ready to seek outside help, start with the following self-assessment:
1) Look at your results. Can they be broken down by customer, project, team, etc. to determine what resources were used to produce revenue, profit and cash flow and how much is being produced?
Consider this: often we ask our team members to simply “get and make the sale.” The sale equals revenue. If we are willing to sacrifice profit, extend terms of payment that require us to expend resources and pay for them today, and then we aren’t collecting payment from the customer for a month or more, then we need cash from other sales and sources to cover the cost of this sale. In other words, we are financing our customer. That is fine IF the cost of carrying the customer is included in our pricing. If we cut our price to a point where we are below the true cost of the sale—including the cost of financing our customer—then we are losing money.
2) Set goals and consider all of the ramifications of those goals. What do you want the most: sales or profit?
Back in the 1990s, I worked in the automotive industry. Then, our goal was to be the number one automotive company in sales. Think about that goal today: How long can you sustain a company if being number one in sales means you are selling products at a loss? Do you want to be the sales leader, or do you want to be number two or three and be the profit leader? Setting goals requires us to understand how those goals translate to financial results. Being able to say “We’re number one in sales!” when you can’t pay the bills doesn’t do you any good.
3) Understand what your team is working on and toward.
Do your team members understand the outcome you want and how each of them plays a role in achieving it? Do they have an understanding of the impact of a “little” overspending on a project, or delays of a “few days” on the cost structure, profitability, and cash position of the company?
As business owners, managers, and executives, we often take for granted that everyone “gets” the total picture … when all they may see is the details of their particular part of things. Giving everyone context in which to operate and specifics of performance targets in total (and for them as individuals) enables the organization to align itself properly to achieve goals.
Don’t assume that everyone will automatically work toward the stated goal. Monitor, manage, and act to keep everyone on track. You will find that the result is worth the effort.
Author: Lea A. Strickland, MBA CMA CFM CBM GMC
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