CategoryUncategorized Archives — Page 11 of 11 — C. Lynn Northrup, CPA, CPIM

Setting Goals and Objectives – Part One

Setting goals and objectives is critical to success and it is a difficult task for many people. After completing a strategic planning session, the next step is formulating action plans for your functional areas. This represents a basis for you achieve meaningful results during the next year.

Setting goals and objectives begins with assessing your function’s performance and the major issues that need to be addressed during the next year and how they link to your strategic plan.

Examples of functional key results areas include:

• Unit production/output
• Cost control/management
• Productivity
• Service design
• Vendor/supplier relations

There are four steps in conducting the assessment:

1. Identify perceived issues – this done during your strategic thinking sessions.
2. Prioritize issues – determine the four to eight most important issues that are most likely to have the greatest impact.
3. Analyze issues – validate a particular issue and develop effective ways of addressing it.
4. Summarize issues – summarize specific conclusions and courses of action.

The performance indicators should be measurable based on the established objectives. They can be selected for any or all of the following:

• Hard numbers such as sales, units of production, products shipped, and clients served.
• Percentages, such as profit margins, market share, sales to new customers, repeat business, and productivity increases
• Significant achievements such as major project completions.
• Service factors, such as response time, frequency of contact, and customer acceptance.
• Problems to be overcome – such as credits, overtime, late production, cost overruns.
• Soft or indirect indicators, which may suggest effectiveness in subjective areas such as employee turnover, absenteeism, or customer service.

The performance indicators should identify what will be measured but not by how much or in what direction. They should represent factors that can be track on an ongoing basis. The cost of measuring or monitoring should not exceed the value of the information.

In part Two I am going to describe how to Establish Your Objectives.

Profit Focused Strategies for Tough Times

Tough economic conditions will stress all businesses and present challenges and hardships. Dealing with these challenges is the key to survival. The survivors will be those business owners who utilize an effective strategy combined with the right accounting and measurement tools to keep their business on track. I think this is a good time to talk about profit focused strategies and how to apply profit focused accounting techniques so they work to your advantage.

Profit focused strategies are based on developing effective strategic plans using lean accounting and throughput analysis to increase sales and cash based profitability. Whether your business produces a product or provides a service it is important to understand which customers, products and services generate the greatest amount of profitability. A lean accounting analysis is critical in determining the variable margin by each product and customer.

This information should be utilized to assess your productive capacity and then focus on adding volume and capturing market share based on your strategic plan. Another management and analytic tool that should be utilized is the application of activity-based management. Use these concepts to evaluate your capital investments and overhead costs in order to make the best decisions for the long haul. Another key element is developing a balanced scorecard to help select the right measurement and indicators to monitor progress toward achievement of your strategic goals and objectives.

I know this sounds complicated, but in reality it isn’t that difficult. It is a process of analyzing the sales or throughput for your business and getting it aligned with the variable costs and other expenses associated with generating those sales. Based on this information it is critical to develop strategies for increasing market share together with the pricing strategies that will provide the desired market penetration. Effective analysis of the cost drivers within your business will allow you to make more informed decisions about where and how to strategically focus your efforts. When selecting your key measurements be sure to identify both financial and non-financial indicators for tracking your strategy using a blend of financial, customer, process, and employee related factors.

Remember that cash is king. You need to install the discipline in your business processes to make sure you are focused on the creation of cash from your market penetration strategies. It is the economic profit that shows up in your bank account that really matters. Therefore, put your emphasis on creating economic profit and cash flow. This is where lean accounting and profit focused strategies will pay off. Another benefit of applying profit focused accounting is that understanding your financial statement is a lot easier. It is like looking at a breakeven analysis every time you review your profit and loss statement.

When a Business Needs Help

These are tough times. The current economic environment is something most business owners and their advisors have never experienced. We are going to see conditions get even tougher. This is what we are facing:

• Lots of highly leverage businesses and individuals
• More competitive business situations
• Banks are reducing available capital
• A much slower economy

This is when strategic planning is invaluable.  We need to engage a longer term focus to ride out the storm. It is critical for businesses to identify the best growth markets and the competitive threats facing our business. Careful consideration must be to given to employing the proper resources and in the right amounts so we can maximize our return on invested capital.

The process of strategic planning and budgeting is when we identify where the business should be going and how it is going to get there. We need to abandon short-term approaches except to be sure we have the necessary cash and resources to survive. In the past, all too many businesses, advisors, and investors where looking for a quick return. It is now time to return to the basics of building shareholder value. This means taking a long-term oriented approach that encompasses all aspects of the business.

My advice to clients and advisors is to take a diagnostic oriented approach to identify problem areas. Look for the low hanging fruit as you assess operational strenghs and limitations. Focus on improvement opportunities both for the short-term and the long haul.

In this environment you need to be reactive to your current situation and focus on improving cash flow. However, while you do this it is critical to be aware of and recognize the long-term elements of value based management so you don’t cut off your nose to spite your face.

By taking a hard nosed diagnosed assessment of the business (yours or your client’s) you can avoid running out of borrowing capacity and possible bank defaults. Action taken now can stop significant deterioration of revenues through lost customers. Treat the economic situation and crisis on a proactive basis for potential opportunities.

Some business owners don’t want to use consultants but engaging someone who understands how to diagnositically analyze a business and implement corrective action can be worth its weight in gold. Business advisors who are skilled in strategic planning and budgeting can mean the difference between surviving or not making it in such turbulent times. It is a good time to take stock of your business and how you are going to move forward. My Building Business Value program offers a good blue print for doing the right things for the right reasons in a tough business climate.

Building Business Value

Building Business Value is a program designed to assist smaller and mid-size businesses grow and add value. It is a consulting program that points you in the right direction utilizing strategic, operational, and financial expertise together with effective support tools to keep you on course.

This is a program to help you get started and provide the assistance needed to reach the next level. It also provides the necessary direction and support if the business gets in trouble and helps you get back on track.

The program components include

• Strategic and operational assessment
• Benchmarking and performance measurement
• Strategic and business planning
• Help in managing the change process
• Assistance in managing and measuring performance to add value

The program is designed and tailored so that it is right for each client. The program is adjusted to fit the budget so businesses will understand what it will cost each month.

The BBV program requires an ongoing commitment. It will take at least 12  to 15 months or longer. Listen to my podcast on BBV which explains and discusses the concept in greated depth.

Protecting Your Money

In these turbulent financial times “protecting your money” is critical.  I think that one of the keys to protecting your money is having relationships with solid financial partners. How do you do this? Solid financial partners (banks) should possess the following attributes:

• A solid balance sheet with adequate capital
• A risk management program that is prudent
• Have integrity and transparency
• Maintain diversified streams of revenue
• Have a history of solid credit quality

Some people may not understand how to make sense of these interpretations and be comfortable evaluating balance sheets, but it isn’t that tough. In these times it is critical to learn these skills. Evaluate your bank and then compare them to other banks in your community.

I look for breath and width in a bank so if things get tough your credit lines will still be available and your funds safe. Smaller regional banks in many instances can be solid but why take a chance when stronger institutions are available.

Banks have plenty of data available and it is prudent for people to ask them for balance sheets and industry leading performance metrics. Then go make comparisons. Take a look at the following metrics:

• Return on Average Assets
• Return on Common Equity
• Efficiency Ratio
• Net Interest Margin

Making these comparisons will provide clearer guidance on the safety of their money. All banks should be able to provide the above information and if they can’t or unwilling it might be a good indicator about where to put your money. This extra effort will help you make better choices on where to bank and allow you to sleep at night.