Taking stock and preparing for the year ahead
One of the enduring messages from the global financial crisis is that very few people saw it coming, which means very few businesses were ready for it. For business owners, the lesson from this is to put in place permanent processes in their businesses to help reduce the impact of unexpected events affecting the health of their enterprises.
While it’s easy – and natural – to feel overwhelmed when unanticipated events occur, effective planning can reduce the impact.
So as we begin a new year and examine what new challenges – and opportunities – lie ahead, it’s a good time for small businesses to take stock and ensure that they have the right processes in place to effectively manage their business in 2011.
It’s worth noting that while planning will help to keep your business one step ahead, there will be some events that are completely unexpected, such as the floods that we are seeing across Queensland, Western Australia, New South Wales and now also Victoria and Tasmania. On behalf of the team here, I want to take this opportunity to extend my most sincere thoughts to those that have been affected and our thoughts are with you during this very difficult time.
The first step in preparing for the unexpected is to identify a comprehensive list of risks facing the business. At the start of this process, it’s an idea to schedule a risk mapping session involving all the significant people in the business. This might involve organising a half-day, external workshop with a professional facilitator, who can act as an independent third party during the risk mapping process.
Before the session, identify all the different components of your business (for example, marketing, manufacturing, finance, sales, management, suppliers, supply chain, customer service and staff). During the workshop, take time to brainstorm all the different risks that could impact each of these individual areas.
The idea is to identify all the possible risks that could impact each area of the business to produce the risk map. As a business owner, it can be confronting to identify all the possible risks facing the enterprise, but once you know what your main risks are, it’s possible to do something about mitigating them. This is a much more sensible approach than ignoring risks altogether or not identifying the full gamut of risks the business may be exposed to.
The next step in reducing the likelihood of risks derailing a business is to put a mitigation plan in place. Again, it might be an idea to schedule a special external workshop involving key team members to strategise tactics for risk mitigation.
Start by taking the risks identified on the risk map and prioritising them. It’s useful to use a traffic light system to categorise each risk as green/low risk, amber/medium risk or red/high risk. This will give the business the information it needs to decide which areas to tackle first, with the idea being to prioritise high risks before lower risks.
A work-in-progress document should be created as a result of this process, with clear action steps related to each point and assigned responsibilities for each step to individual team members. Following the risk mitigation session, it will also be important to schedule regular meetings at which team members will be required to be accountable for any responsibilities assigned to them.
Cash flow management – critical to business success
One of the most important aspects of business is cash flow management. No matter how often it is talked about or how boring it may seem, this is the lifeblood of your business. If you don’t have efficient processes in place to manage cash flow, you’re putting yourself at real risk.
Financial risk is one of the key challenges every business faces. Many face short-term cash flow risks, others face longer term funding risks, especially high-growth businesses that need access to funds to underwrite growth strategies such as financing new ventures.
Every business owner must be proactive as opposed to reactive. The companies that get stuck in tough times are those that start to work on a problem after it has already happened. By this time, their cash flow has already been severely damaged and can take a long time to recover.
Above all, it is important to undertake what the experts call a ‘stress test’ of the business, which is a way for you to analyse your past, present and future cash flow position. It involves you, as the business owner, putting together detailed reports covering off everything from key performance indicators, to cash flow forecasting and drawing up hypothetical ‘what if’ scenarios to ensure you are prepared for anything. Do this regularly and make it standard procedure in your business.
- Ensure you have specific, realistic and measurable goals for 2011.
- Ensure you have an accurate profit and loss balance sheet.
- Ensure your monthly financial statements are reviewed at least two weeks before the end of the month.
- Compare how your actual cash results compares to your budgeted results. Is there a big gap? You must ask yourself why this is and what factors have come into play. Have you overspent? When/where did this occur?
- Prepare a bullet point list of what went well during the month and what areas need improvement.
- Update your budgets for future quarters in advance so you have a clear position of where you are going.
Commonwealth Bank 2011 Small Business Forums
2011 marks the third year in which the Commonwealth Bank is running its Small Business Forums across the country. Hosted by Peter Switzer, the Forums are a chance for small businesses to receive expert advice on how to get the most of out their business, including:
- Harnessing the power of new age marketing.
- Maximising sales generation.
- Getting the best out of your staff.
Craig James, Chief Economist at CommSec, will also be on hand to examine 2011 from an economic perspective, identifying the trends that may affect your business and how to stay one step ahead of the game.
The forums are free to attend, so visit www.commbank.com.au/smallbusinessforums to secure your place now – with limited spaces available make sure you register early to avoid disappointment.
Written by the team at Commonwealth Bank.
Published on: Tuesday, January 25, 2011blog comments powered by Disqus