Are You Really Good at Scorecarding
And Running Your Business ?OVERVIEW – Information on Canadian business financing and advice for scorecarding solutions for your business
How can you tell when a business is doing well?
Business owners and managers that are ‘non financial’ in their backgrounds often need to know how to ‘‘scorecard’ their business. They want to know how to make intelligent decisions about both running their business and moving it forward. At the end of the day the owner/manager wants to know they are managing their assets properly in a manner that allows them to grow and profit.
It might seem improper to answer a question with questions but at the end of the day the business person needs to have a solid handle on some key basics. They might include:
Are we financing are current assets (A/R and inventory) properly?
Can we take on more debt or would it be actually necessary to bring in new ownership equity?
Do we have proper operating efficiencies when it comes to collecting our accounts or turning inventory over?
If the owner/manager understands the relevance of those questions and where to seek answers they are definitely on the right track to doing well.
A key secret to doing well is in what we have termed ‘relationships ‘. Many call them ratios – but if you understand the relationships between just some key numbers in your financial statements that revolve around profit, efficiency and solvency you are absolutely on the right track to doing well.
A quick example? Let’s focus on ‘profit ‘. Take your total profit for the year and divide it by the assets in your business. It’s a simple arithmetic calculation. No financial degrees required. It’s a measure of how you’re using the assets in your business relative to the profit it generates. All industries have different results based on capital intensiveness, etc. So if you think you’re different, you are! But not when compared to others in your industry. Lenders and investors will look at this simple comparison to justify loans or new equity.
One final point on doing well. The numbers in your financials don’t always provide answers – but they can provide some great questions, which you need to address!
What are the signs of a business doing poorly?
While many people use sales /revenue as a yardstick of success we ourselves are a bit more financially oriented to focus just on that. Solvency is therefore important. When you can’t pay bills or suppliers a whole lot of business distress starts to take place.
That’s when it time to focus on a ‘back to the basics ‘strategy that might include improving liquidity by refinancing. Many companies are doing poorly because they simply have too much debt relative to their asset base. Lenders such as banks have some basic ‘yardstick ‘measurements when it comes to cash flow and the amount you can borrow. If you don’t meet those yardsticks lending is curtailed and your company has the risk of entering into the ‘death spiral ‘that we read overtakes many firms.
If your client base is drifting away and owners and shareholders are dissatisfied it’s time for the business owner to assess the problems.
What steps should entrepreneurs take when your business is not doing well?
Business owners need access to good data when the company is perceived internally or externally as not doing well. Key focus on sales, financial controls and availability of financing become key. Objectives at this point have to be realistic, allowing the business to handle challenges of not doing well because of general economics or operations.
It’s all about understanding your financial position, and using that data to address the particular challenges you’re facing. We come back to ‘relationships ‘ again ; that could be focusing on cash flow strategies, analyzing cash outflows , looking at inventory controls, and rationalizing headcount .
How you can prevent your business from failing?
There’s of course no guarantee regarding business failure. One factor that we see often is that many businesses equate sales and profits as ‘cash flow ‘. That kind of thinking has led to some of the greatest financial debacles in business history – so we always encourage clients to have a solid handle on that difference – and it’s a large one. We can jokingly say that to avoid all future cash flow problems we encourage owners and executives to compensate sales staff on collections – but that has never really gone done well!
Who can help get a business back on the right track after failing?
While you can pay turnaround experts and consulting firms large amounts to get your company in turnaround mode the reality is that in many cases the business owner and manager has access to a lot of quality information in their own networks of accountants, lawyers, peers , bankers, etc . Getting credible advice from trusted, experienced parties never has to be expensive or time consuming.
While our firm, 7 Park Avenue Financial focuses solely on business financing we have found ourselves spending countless hours in helping clients achieve overall business success through referrals, advice, etc.
Stan Prokop - founder of 7 Park Avenue Financial –
http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details :
http://www.7parkavenuefinancial.com/canadian-business-financing-advice-solutions.html
Stan Prokop
