We’re all thinking about what the future looks like. What lessons did we learn from the recession that can help us prepare for evolving threats? Can we thrive in a post-crisis economy? What traditions and behaviors will no longer be relevant? Will technology help us pivot faster?
What’s a CEO to do?
Here are ten ways to become smarter about your bottom line.
Develop and Use a Chart of Accounts
As a general rule, it is necessary to have separate cost of sales accounts for each type of sales or revenue account. In a maintenance company, labor is your single largest manageable cost. A chart of accounts will help you manage it.
Manage Cash Flow
Cash flow problems can be a leading cause of failure. Analyze and manage your cash flow to make sure you have enough each month, and use accounting software designed to help you produce a cash flow statement and create cash flow projections you can rely on to determine whether you have your cash flow situation under control.
Bottom-Line Growth vs Top-Line Growth
The top line is gross sales. The bottom line is net income. Both are useful in determining your financial strength. The bottom line describes spending and operational efficiency; the top line describes how good you are at sales. Many managers look at the bottom line and if the net gain/loss numbers look ok, do not dig any deeper. This is a mistake.
Don’t be afraid to invite a second opinion. Pick someone on your accounting team to play devil’s advocate. You want your accounting team not just to keep score, but help you see things that you may miss or take for granted.
Understand Your Balance Sheet
The balance sheet is a summary of all your assets and liabilities and is the true measure of your company’s health. Learn your ratios and what they mean and how to influence them.
Commit to Budgeting
A budget will help you focus on cash flow, prioritize your spending, and increase returns on investment,and provide the tools to measure your short- and long-term success. It’s also a good thinking exercise. If you can remember what assumptions that you made in arriving at a number, you are way ahead of the game in understanding what went wrong when you missed the number.
Have a Financial Advisory Team
Enlist key members of your accounting and executive or managerial teams to help you tackle financial planning, review internal controls, policy and processes, and provide cross-practice support. This gives them shared ownership in doing their part to achieve the targets. Seek outside professional advice to assist with technical reviews and ensure consistent and compliant reporting.
Be an Open Book
Transparency does not mean that you have to share your whole financial statement with your team, although some companies do this. Be open with your employees about outcomes they can influence. This creates ownership, drives performance, and is good for morale. For instance, operations managers should see sales and job costs; crew leaders should understand how the hours work – this will ensure that everyone keeps the big picture in mind.
Measuring your performance is the best way to deepen your strategic insight. Benchmarking and KPIs and other analytical processes are the cornerstone of continuous improvement, and time well spent to be more efficient, more profitable and find opportunities to boost market leadership.
Aligning business goals and targets with organizational structure can generate positive outcomes. When these are misaligned, there is a danger that performance can become self-serving. If you create incentives for employees to achieve targeted goals, beware of unintended consequences: it can bleed red ink and create a cutthroat culture. More damage can be done by an ill-conceived plan than no plan at all. This is one area where you should get help from the outside whether it be consultants or from other contractors that you know.
Numbers are important and require rigorous attention to detail. But stressing only financial numbers can also contribute to sending mixed messages to your team. Remember that other numbers have an equally important values: the number of people who trust and respect your company; the roster of satisfied customers—of retained customers; having a high-percentage of engaged, motivated employees, and the amount of credibility your company has in the community.
Performing an immediate assessment of your organization’s processes, functions and financial systems to identify points of weakness will help your organization respond effectively and safeguard your exposure.