Measuring The Projections

Matrix Key:  Financial Viability - Profitability - Measuring the Projections

"It is often said that there are two types of forecasts, lucky or wrong." - Unknown

Even the best business projections and forecasts are meaningless unless you compare them to your actual performance.  One of the most important facets of Financial Viability is to measure your projections, that is, to measure your company's performance against those projections.  If your results vary widely from your projections, you should take action immediately to either stop the bleeding or make necessary adjustments.  So what's the best plan for measuring against projections?

Here are four weekly actions to take to stay on top of your projections:

1. Accounting department meeting
2. Production department meeting
3. Sales department meeting
4. Estimate department meeting   

Each of these parts of your business need to constantly review their costs, labor, and time, as well as report on any unusual circumstances that will skew the results higher or lower.  A forecast is a critical tool for success, but it is just that, a prediction that will be lucky or wrong.  The proof is in the pudding, and measuring your results is a key ingredient your recipe for profit.

Are You Ready to Win?

Cash Flow Forecasting

Matrix Key:  Financial Viability - Profitability - Projections and Plans

“Cash Is King.”

Few components of the WholeLife Matrix carry as much weight as profitability.  For many people, profit has negative connotations.  But without profit, you don't have a business. Cash flow forecasting is essential to the success of every business, and should include the following:

1. A schedule of receipts and disbursements
2. Liquidity measurements
3. “What if” scenarios
4. Accounts Receivable to Cash projections

Here’s the bottom line…if your business runs out of cash, you are out of business.  You need cash to pay vendors.  If you don’t pay them, they will stop selling to you.  You need cash to pay employees.  Few employees are willing to volunteer their time.  You need cash to pay off debt.  Banks are picky about being re-paid.  Cash is King.

You must monitor your cash flow at all times.  How quickly will your Accounts Receivable convert to cash?  What if your customers pay you three months late?  What is your percentage of cash to inventory?  A close look into all of these questions is worth your time and effort.  A little planning now will keep the wolf from the door later and will keep you on a winning path.

Join us for an ongoing conversation about my blogs every other Tuesday at 11am Pacific Time.    Send me an email (Ralph@Consulting2Win.com) with "Deeper Dive" in the subject line, and I will send you the login information.  

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Projections and Plans

Matrix Key:  Financial Viability - Profitability - Projections and Plans

"Failure to plan is planning to fail." - Unknown

We've devoted a major quadrant of the WholeLife Matrix to the practice of Projections and Plans.  Most good entrepreneurs know that planning is essential to success.  It's easy to let planning drop down the priority list though, when the day to day responsibilities of a growing business become more time consuming.  Here's the thing...without consistent, good projections and plans, your business is being run by the circumstances.  That's like the tail wagging the dog.

The four principles of good Projections and Plans are:

1.      A reliable Cash Flow Forecast

2.      A reliable Sales Forecast

3.      A projection for your Sales/Expenses/Profit

4.      A System to Review and Adjust all of these projections and forecasts

Don't let the market determine where your business will end up.  There are too many easy and efficient tools you can use to stay out in front of your company's performance.  Use your own ideas as your guide and head down your chosen path.

Are You Ready to Win? 

Good Accounting System

Matrix Key:  Financial Viability - Profitability - Accounting System

"The company accountant is shy and retiring.  He's shy a quarter of a million dollars.  That's why he's retiring." - Milton Berle

There's a good reason that the cornerstone of the WholeLife Matrix is having a Good Accounting System.  The accounting system is the road map of your business.  Without it your business is basically blindfolded and wandering aimlessly.  All the hard work you put into your product, your employees and your visibility in the market vanish in a heartbeat without a good accounting system. 

The four requirements of a good accounting system are:

1.      The system must be Tracked Daily;

2.      You must have Someone Accountable;

3.      There must be a system of Checks and Balances; and

4.      There must be Capacity for Growth.

Look at your current accounting structure – can you identify each of these requirements in your system?  As the above quote hilariously implies, your accounting system is only as good as the people who run it.  Depending on the size of your business, you might need only one person to manage the accounting system or you might need a whole department.  Make sure you invest in a quality experienced financial accountant.  That's a winning bet for your business' long term health.

Are you ready to win?



Estimating and Pricing System

Matrix Key:  Financial Viability - Profitability - Estimating and Pricing

"And when is there time to remember, to sift, to weigh, to estimate, to total?"  - Tillie Olsen

Within the Financial Viability quadrant of the WholeLife Matrix we have included a section on the importance of  an Estimating and Pricing System.  As any good bargain shopper will attest, it pays to know what things cost in the marketplace, and what it will cost you to source materials to produce your product.  Your production cost doesn't include just materials either...time is an equally precious commodity.  You must have a clear understanding of your costs and be able to accurately estimate them if you want to be profitable.

               The four requirements of an estimating/pricing system are:

1.      You must have estimates for time and material

2.      You must be able to compare estimates to actual results

3.      There must be a system to track the percentages of time and materials used

4.      There must be a system to deal with significant variances from your estimates

If your business is not as profitable as you think it could be, review your systems for the four above principles.  An accurate cost accounting system with help you determine your gross profit margin, track your expenses, and calculate your net profit.  Estimating and pricing take time, but the potential savings can show up as big wins on your bottom line. 

Are you ready to win?

Financial Viability

Matrix Key:  WholeLife Matrix - Financial Viability

"Things work out best for those who make the best of how things work out." - John Wooden

The first quadrant of the WholeLife Matrix is Financial Viability.  For most business owners and entrepreneurs, Financial Viability is top of mind and sometimes all consuming.  Without a financially successful business, it is hard to achieve balance in all the other areas of your life.  

The Financial Viability quadrant identifies the four key essentials to a healthy, thriving business:

1. Profitability and Finances
2. Resource Management
3. Marketing and Sales
4. Production and Delivery

 These are the four legs of your financial viability table.  You have to make sure you are putting equal effort into each of these four aspects of your business.  Future blogs will detail some of the actions to take in each of these areas.  For now it is important to note that each of these components affects the others, and all four must be operating in tandem and very efficiently.

Business owners and managers have a lot to do and handle every day in order to be financially viable.  By breaking down the business into segments, it will be easier to identify strengths and weaknesses as well as delegate actions to the appropriate teams.  When you have your Financial Viability game plan in place, it will be much easier to win the game of business.

Are you ready to win?

Let's Talk About Profit

“I don’t want to do business with those who don’t make a profit, because they can’t give the best service.” – Richard Bach, American Author

Profit is the oxygen of any business. If your business is not making profit, you have a hobby, not a business. We all go into business for a reason, and if you want to fulfill your purpose for having a business, your business must be profitable. Profit is what allows a company to expand and stay viable. Profit allows the company to contribute back to the community, to research better ways of doing things, to explore and experiment in ways that benefit us all.

How do you know if your business if profitable or not? Successful business owners know that they have to regularly monitor several key profit measurements if they want to know how well the business is performing. Too often, business owners don’t take the time to study profit indicators. They figure that if the accountant is still able to write checks, they are still in business. They don’t have time to look at the math and determine what is and isn’t working.

When you’re not on top of your profit numbers, you are likely missing opportunities to increase your profit. Many businesses can increase profit substantially just by making a few quick changes to the systems they have in place. And in this economy, no one should be leaving profit on the table if it’s right there for the taking.

Profit margins and ratios provide a comprehensive and current snapshot of the company’s bottom line. They quickly point to bottlenecks in your production system and what part of the business is costing more than it should. Every company should have profit targets they work toward and periodic reviews to see how close or far they are from those targets.

Profit margins, such as gross profit and net profit, show the company’s ability to turn sales into profit. The business does a certain amount of sales and generates a certain amount of revenue. How much of that revenue falls through to the bottom line is an indication of how well the company is being run.

Return ratios determine the company’s overall efficiency. Efficient companies keep cost of goods and operating expenses under control, allowing them to convert more revenue into profit.

Companies should also evaluate customer profitability. Do you have some high maintenance clients that cost you more than you make on them? Monitoring customer profitability allows companies to better define who their ideal clients are and how to effectively and profitably manage them.

Next week, we’ll dig into the math and calculate some actual profit margins and explain what they mean to a company’s success. In the meantime, consider how well your business monitors profit. Are you confident that you are meeting your targets? Or are you just guessing at your bottom line? If you want your business to win, you’ve got to know how to keep score.

Are you ready to win?