With over 20 years in the accounting and audits of a range of organizations from small businesses to large conglomerates, there is one certain realization that exists in business: “Accounting is simply a “means to an end”; a foundation for growth, profitability and the sustainability of the business.”
It’s essential that businesses have a strong foundation to support its future endeavours and its medium and long-term vision. Unfortunately many businesses are operating on a foundation of sand, which is much too susceptible to the rough, turbulent waters of these economic times.
With this in mind, let’s discuss four (4) warning signs of a weakening company and how you, as CEO or business owner, can use your accounting processes and systems to strengthen your foundation for growth:
- Lack of Cash Flow
- Outdated Structures
- Fear of Risk
- Lack of Strategic Support
- Lack of Cash Flow
I’m sure we’ve all heard that cash is king (or queen!). One of the most critical signs of a weak business is the lack of cash flow coming into the company or a decrease in liquidity over a period of time.
You must monitor your cash flow on a daily basis and in fact there are a number of ways to do this. Having your accountant generate the necessary reports from your accounting software and analyze and project your cash flows for the upcoming weeks and months prevents surprises and crises from occurring.
When projecting your cash flow it’s always a good idea to be as conservative as possible taking in account the payment patterns of your customers, which will have a direct impact on your payment decisions. Good accounting processes can generate accurate figures for strategic decision making.
- Outdated Structures
The world economy has sped up. Businesses can be start up in only one day, however unless you’ve put the necessary structures in place and keep updating them to match the ever-changing economy and the ever-changing market place, your business foundation can become unstable. Every business, no matter how small, must have proper updated accounting systems.
What’s the warning sign here?
The time and effort it takes your accounting team, whether in-house or outsourced, to generate the figures you need to make the necessary business decisions to grow the business. Remember we said that accounting is simply a means to an end, the process that would facilitate the business owner to grow the business.
There are some businesses, for example, that are still using Excel™ spreadsheets and/or hand-written sales invoice books to track their numbers. This takes up too much precious time and can easily be rectified with proper information technology (I.T.) systems and accounting systems and processes.
Analytical and strategic decisions are the backbone of any business. With outdated systems and staff (Yes! Your team must also constantly update their skill set. Employees can make or break a business.), this process becomes extremely difficult and the business may find itself losing out on opportunities to grow.
- Fear of Risk
To be able to grow any business, Management must take the necessary risks to reap the desired rewards. Business in itself is risky. Management has the overall responsibility for controlling the company’s risk but must combine this with creating opportunities for growth and expansion.
There must always be some scope for the future investment in the overall vision of the company. If Management is risk-averse, this may lead to a lack of innovation and the company may stall in terms of its growth.
This is a huge warning sign for the shareholders or business owners and can eventually lead to a loss in market share or, in the long-term, even a change in the senior executives.
Your accountant should be able to support the management team here, providing the necessary reports, including sales and revenue reports, debt versus equity ratios and profitability ratios comparing the previous months and years.
This leads us to our 4th and final warning sign of a weakening business foundation.
- Lack of Strategic Support
Business is all about the numbers. Numbers tell the story of the business. Accounting is the building block for the creation of a strong business foundation, because it allows the business owner to have a bird’s eye view of the business by looking at the numbers.
Unfortunately, however, many business owners and CEO’s, don’t have access to high-level strategy support and consequently run their business from day to day. When this happens, no growth occurs because the business owner is so busy putting out daily fires that there is no focus or energy exerted on a strategic plan or the medium or long term strategic vision.
Having your accounting systems and processes generate the high-level reports that are needed to provide the basis for creating the overall strategy is critical.
This is where the need for advanced strategic support is required as it can guide the business through the turbulent economic waters and create the strategies for growth and profitability. All because of the smooth accounting processes that are able to detect those warning signs.