09 August 2007

WHY BUSINESSES UNDERPERFORM






There are many reasons why businesses fail to reach their full potential.

The following is a brief summary of the major causes of underperformance.

Lack of a detailed business plan or the plan is out of date. Research suggests that businesses with a working business and marketing plan achieve 63% higher revenue growth and 58% higher profit growth that those who don't have a detailed plan. The business plan should be updated at least every 6 months.

Lack of an integrated profit and loss, cash flow and balance sheet forecast. Every business should have one and it should be updated every 2 to 3 months.

Lack of a rolling weekly cash flow forecast. Ideally, this forecast should cover 10 to 12 weeks and be updated every Monday.

Poor management of working capital (trade debtors, stock and trade creditors). Businesses that are growing rapidly can quickly come unstuck if they don’t aggressively manage their working capital.

Inadequate review of the key performance indicators (KPI’s) of the business. We regularly conduct KPI audits and recommend the appropriate suite of “pre-performance” and “post-performance” KPI’s and controls that should be monitored on a daily, weekly and monthly basis.

Failing to adequately review trading results every month. Many small to medium business owners only review their trading results every 3 months or their accounts are 2 to 3 months behind. Given that it often takes a few weeks to implement new strategies and then 60 days for these to impact on cash flow, the total time to turn the business around has then become 6 months. 6 months is a long time in business and can be the difference between succeeding and failing.

"Buying" sales without understanding the true impact on margins and cash flow.
Management spending too much time working "in" the business and not enough time working "on" the business. Management need to implement controls and delegate certain key tasks to allow them to spend sufficient time on business strategy and protecting the business that they have spent so much time building.

Failing to seek professional advice "early".

Loss of key management. How adequate is your employee incentive scheme?

Loss of a key customer. Is your business overexposed to 1 or 2 major customers?

Inadequate/Inflexible loan facilities. Businesses can quickly outgrow their finance facilities and therefore, they should be reviewed at least every 12 months.

If you would like to discuss these in more detail please feel free to contact us.

Regards,
Michael Fingland
Managing Director


M +61 407 226 968
T +61 7 3229 5750
F +61 7 3229 5765 Level 5, 247 Adelaide Street
Brisbane QLD 4000
Listen to Turnaround Insights Podcast


Vantage Performance
Turnaround Management Specialist

Sphere: Related Content

No comments: