Don’t be an ostrich
One of my clients had some really powerful, and very useful management information in the form of a report from their custom built computer system. The report gave great detail on the thousands of daily & weekly transactions, allowing the client to see profit & loss by individual item, or analysed by groups or by territories.
They had an issue with another report from the system. This second report listed all the supplies that they had paid for, but had not yet arrived – Goods in Transit – and this report was getting bigger and the value of GIT was getting larger & larger. The value of GIT in the monthly accounts did not tie back to this report.
When we investigated, it turned out that both reports were wrong, and indeed were being used in a way for which they were never intended. The business had overstated its profits by almost £1m over a period of some 3 years.
The accounting team had found a small problem 3 years ago when the stock records didn’t match up to the profit & loss report that management relied upon so heavily. They looked at the GIT report, realised that some of the information on the report was wrong, and adjusted the value of GIT to make everything balance. In short, they fudged the numbers. It was a pretty small adjustment for the size of business.
3 years later, when I was involved, that little adjustment had been added to and had grown, so that it was now just under £1m.
The accounting team played Ostrich – head in the sand, hoping the problem would go away instead of dealing with it when it was tiny.
The trouble is when you play Ostrich your rear is somewhat exposed, and your problem will come back to bite you.
Deal with the problems when they are still little problems
On a bus journey, a delivery van had blocked the road and the bus driver pulled up behind the van and made use of the horn. When he didn’t get a satisfactory result, he left the cab to remonstrate with the delivery driver – and was promptly followed by 3 or 4 bus passengers eager for either the distraction or a piece of the action!
The van driver moved his vehicle and the bus journey continued.
How much time and energy did the bus driver, the van driver and the 4 passengers expend in shouting at each other?
Have you got a van driver in your business – someone who gets in the way and delays everyone else?
Wouldn’t life be easier if they didn’t do that?
Do they know they are doing it? Why are they doing it? Have you explained the consequences, and tried to help them, or are you taking a detour and avoiding the problem?
Cooperation is always better than conflict
One thing that I often see in businesses of all shapes and sizes is a focus on the profit and loss account, or income statement, with not enough attention paid to the balance sheet. There may be hidden money in your balance sheet that you can use!
Do you pride yourself on paying all your suppliers on time, but find your customers don’t pay you on time? You are not alone!
** Make it easy for your customer to pay you
One business I advised had succeeded in winning business in the Ukraine, and this was turning into a significant opportunity. The sales team were getting very excited!
The finance team were getting worried – payments were erratic, and very slow.
The Ukrainian government had imposed currency controls – you could not pay in “hryvnia” outside the Ukraine, and to pay in US Dollars you needed to get finance ministry approval for each payment.
That wasn’t easy for our customers, and was hampering our business growth. We established a subsidiary company in the Ukraine, so our local customers could pay us in the local currency. Business boomed and the customers were paying much more frequently.
Now, that’s an extreme example, but how easy do you make it for your customers to do business with you, and how easy do you make it for them to pay you? I’m just asking!
There’s an old cliche in management speak “What’s measured is managed” but like most cliche’s there a grain (or more) of truth within.
I’ve seen businesses at every extreme, from those that measure and try to control absolutely the finest details, to those that barely measure anything.
One client ran a substantial manufacturing business with a weekly management report consisting of two lines on a graph, sales and cost of sales. If the lines started to converge, he needed to take action, if the gap was widening and the lines trending up the business was doing well.
Another business that I worked in had a monthly management report pack of over 50 pages. Nobody (other than the finance team who slaved to put it all together) read all the pages.
In the first case, the methodology was simplistic, but focused on the overall success of the business, and it worked. In the second case, the various departmental managers wanted their own key metrics so they could brag about how well they were doing. No one was focused on driving the overall business success, just their own little piece of the pie.
A current client tells me he is very proud of the fact that his revenue per head and his gross margins are best in class. That has not helped with his most recent year, where a few big projects were delayed and the business lost a lot of money.
He’s not measuring all the right things – are you?