Monthly Archives: April 2013

Pay Attention to Consumer Trends

Henry Ford offered the Model T for two decades, notoriously promising, “the customer can have any colour he wants so long as it’s black.” When product changes were finally made at Ford it took many years to change business processes.

This lack of customer responsiveness and slow reaction would kill a small business in today’s competitive landscape. Consumer trends and demands change rapidly.

Several best practices for business agility include:

  • Maintaining focus. Leverage your core competencies to expand your business, rather than dabbling in unknown areas. You don’t want to be spread thin and unable to respond to relevant opportunities.
  • Becoming Lean. The focus of Lean is taking out waste and all non-value-adding activities.
  • Engaging your workforce. The creative brainpower and motivation of your team can provide significant knowledge and synergy beyond your personal efforts.
  • Staying informed. Your customers are changing, so it’s important to get on top of or even ahead of their needs while being aware of competitor actions.
  • Mastering the basics. Pursuing new opportunities is often beguiling, but building a strong foundation is critical before branching out. Be sure your operations and financial systems are in good order and ready to take on additional opportunities before you commit beyond capabilities.

Building business agility is one of the make-or-break stress tests for a small business. Succeed and you’ll have satisfied customers and a motivated workforce. Do poorly and your workforce will suffer in frustration as your business slips away.

Having a strong understanding of how your business works can help you build a more responsive business.  Your company’s financial statements – including cash flow statements can give you a good idea of any trends in your business. Contact Five Star Accounting for your free 40 minute consultation to get started.

Dos and Don’ts for Growing Your Business

“Grow bigger, faster” is the mantra for many small businesses. These are often last words before businesses run into trouble. The transition from small start-up to a larger organization brings many potential hazards.

Growth is likely if your product and service are attractive. In fact, if you’re in this situation and don’t grow, you’ll probably shrink; competitors will join this appealing market and steal your customer base. So you want to grow, but you must manage the growth opportunity rather than letting it manage you.

The key to “good growth” is taking time from your busy day to plan. Articulate your growth vision, lay out the path to get there, and monitor performance against plan. A few quick tips to consider:

Do: Leverage Your Customer Base

It takes much less time and effort to meet additional needs for existing customers than to seek out new ones.

Do: Qualify Growth Opportunities

In the past you may have gone after any and every opportunity to gain business. Now is the time to be selective. Develop screening criteria for your team to use to be sure that new products or customers are in alignment with your strategy and will deliver desired margins. You don’t want to “bite off more than you can chew” and start missing commitments or having unbearable stress.

Do: Grow Your Capabilities

As you expand to serve greater customer volume or broader direction, it’s important to evaluate internal capabilities. Do you have the right functional expertise in-house or outsourced to be effective in larger roles? For example, is it time to move from managing accounts on Excel spreadsheets on your PC to hiring experienced business accounting services with core finance competencies that your team may lack?

Don’t: Micromanage

During start-up you probably had to have your eye on every detail because you didn’t have other capable resources to be sure things were done properly. If you’ve developed resources—in-house or outsourced—with strong functional capabilities, be sure they’re empowered to act. This gives you opportunities to focus on overall strategy and performance to keep you on your desired growth path.

Helping with Your Bottom Line – Cut Your Inventory Costs

Excess inventory may be a hidden goldmine in your small business. When small ventures grow they often expand catalogue item numbers, purchase materials “just in case” bid orders come through, and develop new concepts that seem good but don’t turn into saleable products. All of this can lead to growing non-productive stock sitting in a warehouse gathering dust and incurring big carrying costs.

These inventory carrying costs grow quickly, totalling up to 10 to 30% of inventory value annually.  Bringing inventory into control and disposing the non-essential material can drive savings directly to your bottom line. An additional benefit of inventory management is that a business operating in a Lean mode can actually be more agile and responsive to market changes than a business with mountains of inventory filling the supply chain.

The best way to manage inventory is to take stock financially and physically, build a management plan, and engage your workforce to reduce and control inventory.

Taking stock generally includes a physical count of raw materials, work in process, and finished goods. It should also include scrutiny of accounts receivable and payable to look for opportunities to keep from tying up cash unnecessarily. Five Star Accounting can help plan and analyze this investigation.

The physical inventory will usually show that goods fall into an 80:20 pattern, that the highest inventory value (80% of the total) will be found in only 20% of the inventory count. Classification of inventory into an ABC priority ranked by value and usage can help focus on the areas with the biggest management opportunity.

Companies can also implement lean practices such as a Just-In-Time inventory management system that will minimize the amount of inventory that is on hand. Careful analysis of your demand and inventory supply will allow you to lower the quantities you carry on hand.

Negotiations with customers and suppliers can also incorporate just-in-time and other inventory management practices that make smart business sense throughout the supply chain.  For example, keeping minimal quantities of finished goods on hand reduces the potential for having large amounts of product becoming obsolete when customer requirements change, a win for both the customer and your business.

Reorganizing Your Finances for Business Health

One of the smartest things you can do when giving your business its annual physical check-up is to investigate whether refinancing is a timely and value-added option. You may have capital needs related to new projects, growth, or seasonal sales fluctuations and there may be attractive financing options available.

The key to success in this endeavour is getting a complete picture of your balance sheet and cash flow statements before you head to the bank or other financial institution.  Many small businesses don’t have the finance capabilities to do this in-house and turn to Five Star Accounting for support in creating and understanding these documents. Beyond one-time refinancing considerations, ongoing advice in managing finances works as a wellness check for your business throughout the year.

Your balance sheet is a financial snapshot that shows current and long-term assets and liabilities and equity. These financial items are loaded with information on how well your business is doing. A good analysis of the balance sheet tells you how much debt you have and how much of your assets can be liquefied. These are key indicators your finance advisor will use to determine if restructuring is appropriate.

The cash flow statement, on the other hand, gives forecast run rate information. Careful scrutiny will help you predict cash shortages, finance needs, or investment opportunities and help you manage accounts receivable. Managing your finances on a pro forma basis is important to keep your business healthy. Using smart refinancing to get through a tight cash period may mean the difference between long-term health and death of the business.

There are many refinancing choices. Most obvious is getting better terms and conditions, starting with interest rates and payment terms and period and even looking at the whole loan structure. Consolidating debt can often reduce cash outflow. Refinancing can leverage existing assets or increase working capital.

Many small business owners don’t have existing finance understanding to consider these choices and can’t take the time to learn. Bringing in finance and accounting specialists to help with this can be just what the doctor ordered.

Contact Five Star Accounting for a business review to determine the health of your business.