Back to Financial Basics

No matter the issue it is easy to overly complicate anything, and this applies to business. Over time it seems that many businesses morph into something almost unrecognizable from what a company started out as. In the process financial basics are a likely casualty. Let’s take a closer look.

Not Always Bad

Of course, this process can be a good thing if the business has encountered changes that must be faced, such as different customer tastes, the competitive environment, the need for new products, and new ways to interact with customers such as e-commerce. That is just common sense and not really the issue I’m concerned with here.

Who Is Driving Change

Even if the changes are desirable and necessary, it is important to consider if a company is merely responding or is it creating change. Who says your company can’t be the one to change the competitive environment, introduce new products that may even create a new target market, or explore new ways to interact with customers? To stay ahead of the curve it helps to actively explore new options. This often can be done with very little capital or risk. See We’re Making Money – So Why Change? , A Time to Change, and Change or Become Irrelevant for some more on this.

However, this is still not the change being addressed in this article.

What’s Going On

It is not uncommon for a company to add so many policies and procedures that at one time made sense. Upon closer inspection it can often be seen that some (perhaps many) of these no longer make sense. This could be caused by such things as the ability to obtain the same information and control things in a new and more efficient way. The old way that is still being used as well may just be redundant. In other cases it may be employees have not been kept abreast of changes that not only impact the company but also their individual roles. This leads to inefficient operations and clouds the financial basics that drive results.

Often a business becomes what might be describes as cluttered. In particular, owners and managers lose sight of what really matters financially because they are so caught up in day-to-day details that they are no longer spending adequate time looking at the big picture. They no longer are clear on the financial basics that drive the financial results. This is when it is easy to get caught in the trap of putting all the emphasis on getting more sales. Yet, while more sales is generally desirable, it is crucial to consider such things as whether these sales deliver the profitability needed, will they lead to more sales or more profitable sales, and are these the customers you want to serve? But, don’t stop at sales. Has your company lost the ability to identify the key drivers of cash flow such as inventory levels and turnover, receivables collection, alternative product sources, and having the correct employees and the right number of them? Much of this needs to be boiled down to its simplest form to prevent getting lost in excessive details. See Balance Sheet Management – Make It Simple and Cash Management –It’s Not About the Cash Account for some additional thoughts.

The above is just a sampling of how business owners and managers can lose sight of what is really happening. If you sense this is your situation, take some time to examine how you operate and identify things that clutter. Then, eliminate those that are unnecessary or redundant. This will help you get back to the financial basics that provide important information. If you need help on this, AimCFO is here for you.

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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