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Check Your Company’s Oil

Author: Larry Chester, President

Seven-point maintenance checklist to tune your business engine for success

I like highly tuned sports cars. There is a certain visceral pleasure at hearing that engine roar, or, taking it to the track and feeling that acceleration and cornering at high speeds. And I also like a highly tuned company. One that has controlled costs, solid profit margins, reliable employees and a growing bottom line.

Whether you’re into cars or not, there are things that you do on a regular basis to avoid problems. At the very least, you change the oil regularly and watch the gas gauge. You know that without regular maintenance, the car could break down on the road, causing a crash.

Your company is a finely tuned machine as well. If everything is running properly, you get what you expect — growth, profitability, stability, and great results. But how do you make sure that you get those results? You don’t like bad news, but sometimes it happens. Sometimes it’s out of your control.

But when you get surprised, that’s a major problem. Why didn’t you see it coming? How did you miss the warning signs? Were you checking your oil on a regular basis?

Forecast and manage cash flow, reporting and more

Let’s take a look at seven things that you should be doing regularly that will keep you from getting a bad surprise.

  • Develop a cash flow forecast — I hope that you’re not running your company by checkbook. If you are, that’s another problem that we need to discuss. You need to know how much cash you have on hand, what your cash commitments are for the next 2 – 4 months (actually a 13-week cash flow forecast is the standard) and what you expect to receive so that you have money available to pay your bills and payroll. Don’t be the business owner who wakes up on Thursday to find that he needs to chase cash to cover payroll on Friday.
  • Project your sales — If you’re waiting till the end of the month to see what your sales were for this month, and don’t have a clue what your sales future looks like you’re not checking the oil. What are the leading indicators for your sales? Are your salesmen making calls? Is your drip email campaign generating results? What is the activity that leads to sales? Measure that activity to see if you’re moving consistently forward. If those KPIs drop, your sales will likely do the same in 30, 60 or 90 days, depending on your sales cycle.
  • Inventory utilization — Watch your inventory turns on a product to product or product family to family basis. Then you’ll understand if you’re using your money efficiently. Make sure that you have the inventory to meet your clients’ needs. But, idle inventory sitting on the shelf is a waste of money. Your inventory turns should be 4 – 6 times a year. If your turns are 1 time, you’ve got money wasting away on the shelf. If your turns are 12 – 18 times a year, you may lose out on sales because you could be running out of inventory to meet incoming sales orders.
  • Staff utilization — If you’re a service company, the hours that your staff works is the inventory that you have to sell. What is their utilization? Are they sitting idle, waiting for something to do? A restauranteur told me that his inventory is perishable because it spoils in 48 hours. Well, a service company has volatile inventory. If it’s not used right now, it’s gone, and can never be recovered. Understanding your staff utilization will ensure that you have the right number of people for your sales and operational activities. Too much staff, you’re wasting money. Too little staff, you’re potentially not paying enough attention to each individual client.
  • Timing or accuracy issues in reporting — Are you getting all the information you need to make decisions? Are you getting it on a timely basis? Is it consistent and accurate? Those are three keys to making the right decisions to run your business. It’s difficult to make time effective decisions if the information that you’re acting on is 60 – 90 days old. If your month end reports are more than 10 – 15 days after month end close, that’s old information. Get information that you need to make the right decisions.
  • Cultivate important relationships — There are three relationships that are key to a successful company — Customers, Suppliers, Bank. You should proactively reach out to all three of these categories. I know, you can’t call all of them, but use the 80/20 rule for customers and suppliers. Eighty percent of your business comes from twenty percent of your customers or suppliers. Concentrate on them. Stay in touch on a regular basis, and you’ll see problems or opportunities before they stare you in the face. Be proactive, so that you’re prepared. That’s keeping your company ready for action.
  • Pay attention to your employees — It’s important to read between the lines. Employees are always talking to each other, and they should be talking to you as well. Listen to what they’re saying. Especially when there is a lot of movement in the employment market, it’s more important than ever to keep in touch, no matter how busy you are. In this market, many employees are always looking. Make sure that their looking is casual. Curiosity is natural. Don’t let it turn into a job search.

When a business owner says that they’re surprised that something happened, whether it’s losing a key customer, increased prices from a supplier, changing credit terms from their bank, losing an important employee, or other key business issues, it’s because they weren’t paying attention. You have a hundred different things on your mind every day. That’s normal. But it’s important to have a plan to check some important things regularly. By checking your company’s oil regularly, you could head off major issues that will take your focus off of what’s most important to you — growing your business.

Make Changes Today That Affect Profitability Tomorrow®

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