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What Not To Do / Accounting  / Don’t be out of balance

Don’t be out of balance

Introduction

Business is like real life. If things are out of balance there will generally be pressure or some toppling over. Businesses operate in a similar environment where out of balance can mean lost profits. Don’t be out of balance in business practices. This guiding principle is relevant for all business of any size but it is especially important for businesses in start-up.

Balancing Act

Businesses generally have a life cycle Start-Up, Growth (break-even), Expansion, Maturity and Decline. All the cycles indicate a general style, structure and approach as promoted by the level of business at that stage. Best practice would be to have all parts of the business compatible with the overall organisation cycle. If one area of the business is out of balance, it will cause problems. Examples include poor productivity, people management issues, poor customer service which may result in increased cost or lost sales. If the approach is not consistent across a business, unexpected events can occur that will also have an adverse effect.

The key areas of Sales, Operations and Back Office should normally be given equal consideration. Sometimes short-term special consideration may need to be given, but no area should be left behind. Systems and procedures within each area should also be in balance. For example, not investing in appropriate accounts systems and procedures when you have considerable sales activity generally doesn’t work very well. If you have a great CRM with considerable investment in sales and marketing tools but don’t have appropriate expenditure in operations and logistics there may be a struggle to service the sales arising. The converse also applies. There is little point in having a CRM costing E2k per month if you have one customer.

My Failures

In one example, clients had set up a business and focused on buying top of the range office fit-out which didn’t match the business type or life cycle. They had little initial emphasis on generating sales and accordingly few sales were made. Unfortunately this business didn’t really get off the ground as they had too much emphasis on fit-out without a balanced focus on other areas. With this imbalance, the business ran out of money before it really got up and running.

Another example of poor balance was where a client started a coffee shop and at the beginning bought a new Range Rover as a company director’s vehicle. It was questionable whether a company vehicle was needed at all but a new Range Rover   represented a very large cash flow drain and especially compared to other areas of the business. The director was made aware that the company was not yet making a profit and with the cash drain from the Range Rover repayments, there was a danger that This vehicle would bring down the business. This business was in start-up.

Conclusion

Don’t have the directors driving Mercedes cars if the sales team are driving Lada cars.

Forecast the business going forward in order to ensure that all areas are matching and to prevent surprises as much as possible. It is very important to report periodically on business performance. Ensure a variety of KPI are used to identify business problems. These KPI’s should measure all areas from financial data to employee satisfaction. Computer systems can be used to assist with KPI recording and reporting. These systems are generally available in scale, according to the business needs.

Top Tips

  • Use a diary to manage time
  • Plan your diary to ensure all areas get the time needed
  • Follow up on all areas according to priority
  • Computer systems are generally available in scale, according to the business needs.
  • Invest in each part of the business equally, according to the need, rather than according to your knowledge or preference.
  • Don’t have favourites (including yourself) and be fair to each area of the business. This approach will bring better returns in the long term.

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