In the last blog we looked at how PEOPLE help develop a successful business. In this second look at creating real business success we look at how the development of PROCESSES are an essential building block for any business to generate real and sustainable success.
Processes
It goes without saying that whenever cash is involved, internal controls are key. There are entire books on controls, so I won't delve into the nuts and bolts here. Instead, I will only mention that the effectiveness of most controls is determined by the organizational culture. So, in addition to structural things like segregation of duties, which is often difficult in smaller companies, the attitude and mindset, and particularly the "tone from the top", play a vital role in the company's overall control environment.
Also on the topic of controls, as with anything else, it is important to measure. The effectiveness of controls is typically measured by auditing. Many think of auditing as a process to detect flaws in controls, but I find it more useful to think of auditing as a control itself. Again, many smaller companies find it difficult to assign the resources to carry out an audit, or many do not feel the need, as "we're all family here". But an audit does not need to be big and fancy, as long as an effective, impartial review of some kind is performed. Remove the personal aspect from it, and start out with a simple one-page "audit plan" that spells out the objective of the review and the steps that are to be taken. Somehow, when you have a checklist in hand, it's harder to hurt somebody's feelings.
Finally, one of the key attributes of any process is its timing. In talking about cash flow, the phrase "time is money" couldn't be more true. When you think about it in simple terms (which is what I do best), you possess significant influence over the two key drivers in cash flow: collections and disbursements. With disbursements, it is up to you as the leader of the company to work with your suppliers to determine the best payment terms for both of you. Fortunately, with existing suppliers, you have a baseline of pricing and terms based on your history. You would want to see how far you can extend those terms without affecting price.
Conversely, if the supplier is willing to offer discounts for early payment (e.g. 2/10 net 30), it is often advantageous to take those discounts. And with the ultra-low interest rates of today, it sometimes even makes sense to borrow funds through a line of credit in order to take the discounts.
But how do you influence collections? Simply put, your customer can not promptly pay an invoice that he does not promptly receive. You might be surprised, but many companies do great at everything else, but then for whatever reason, drop the ball when it comes to getting the invoice out the door. But there are two aspects even here. It is one thing to issue an invoice promptly, and another thing to issue a correct invoice promptly. Organize your billing function to issue invoices as soon as contractually allowed, but with a heightened emphasis on quality so you don't give your customer an excuse to drag his feet.
Processes
It goes without saying that whenever cash is involved, internal controls are key. There are entire books on controls, so I won't delve into the nuts and bolts here. Instead, I will only mention that the effectiveness of most controls is determined by the organizational culture. So, in addition to structural things like segregation of duties, which is often difficult in smaller companies, the attitude and mindset, and particularly the "tone from the top", play a vital role in the company's overall control environment.
Also on the topic of controls, as with anything else, it is important to measure. The effectiveness of controls is typically measured by auditing. Many think of auditing as a process to detect flaws in controls, but I find it more useful to think of auditing as a control itself. Again, many smaller companies find it difficult to assign the resources to carry out an audit, or many do not feel the need, as "we're all family here". But an audit does not need to be big and fancy, as long as an effective, impartial review of some kind is performed. Remove the personal aspect from it, and start out with a simple one-page "audit plan" that spells out the objective of the review and the steps that are to be taken. Somehow, when you have a checklist in hand, it's harder to hurt somebody's feelings.
Finally, one of the key attributes of any process is its timing. In talking about cash flow, the phrase "time is money" couldn't be more true. When you think about it in simple terms (which is what I do best), you possess significant influence over the two key drivers in cash flow: collections and disbursements. With disbursements, it is up to you as the leader of the company to work with your suppliers to determine the best payment terms for both of you. Fortunately, with existing suppliers, you have a baseline of pricing and terms based on your history. You would want to see how far you can extend those terms without affecting price.
Conversely, if the supplier is willing to offer discounts for early payment (e.g. 2/10 net 30), it is often advantageous to take those discounts. And with the ultra-low interest rates of today, it sometimes even makes sense to borrow funds through a line of credit in order to take the discounts.
But how do you influence collections? Simply put, your customer can not promptly pay an invoice that he does not promptly receive. You might be surprised, but many companies do great at everything else, but then for whatever reason, drop the ball when it comes to getting the invoice out the door. But there are two aspects even here. It is one thing to issue an invoice promptly, and another thing to issue a correct invoice promptly. Organize your billing function to issue invoices as soon as contractually allowed, but with a heightened emphasis on quality so you don't give your customer an excuse to drag his feet.
RSS Feed
