Yes or No? Sounds Simple, but is it?
A few years ago, a Maine company went under and 24 employees were left without a job. Vendors, suppliers and contractors were sold short on products they had delivered and labor they had performed. This happened during the recession of the late 80’s into early 90’s. Banks had allowed over-leveraging by builders using land as collateral. This company was one who was over-leveraged and when the loans were called by the bank (who were directed by regulators), they were not able to pay them off or to refinance them. The company failed and thereby closed. While the banks were in error, the choice of the owner of the company to allow the over-leveraged buying because the banks went along with it, was a bad decision. He is the one who lost out.
We in business face decisions every single day. Some have to do with employees, some with our suppliers or vendors and some with our financial security. Do we save our business at the expense of someone else’s? A series of bad decisions can lead to bankruptcy or a lawsuit. But as small businesses, the smaller we are, the more vulnerable we are. Each decision needs to be based on solid information, not hearsay or maybes.
That is why we have financial information hopefully on a monthly basis so we can monitor our financial health. Your profit and loss statements show your revenues for the month (and year-to-date) against your costs of doing business and your expenses. Your balance sheet shows your company’s assets (things you own), liabilities (things you owe) and equity (the value of your company above what you owe). If your equity decreases from month to month or year to year, decisions need to be made. Preferably, you’re making the decisions after seeing month-to-month results vs. year-to-year. That could be too late. Always review with your accountant, consultant, controller or whoever you have as a confidant. Remember, the person should also understand your business.
I’m a big advocate of charting or graphing the results from month to month. The lines or column graphs tell you pretty quickly if you’re heading in the right direction. Looking at a rolling 12 month graph will keep you informed of decisions you’ve been making.
Keeping a cash flow worksheet is the healthiest thing you can do for your business. A cash flow worksheet allows you to monitor your current and future spending against your current and future revenues. This makes it possible to make more intelligent decisions about where and when to make purchases and to be able to foresee your anticipated revenues over time. It’s your crystal ball.
Small businesses have leverage over large corporations in decision making. When large corporations make a decision, the time span to get to an end decision is prolonged. Multiple layers of management have to be consulted, discussions and meetings ensue and weeks or months later a decision can be made. This does not take into account the ego struggles that go on and the power plays that cause delays in the process.
Small businesses can make quicker decisions by making an informed decision with current information or data and making the call. Many business owners who are well informed know exactly what the decision is just by knowing their balances and holding others accountable for their part. When a supplier delivers damaged product, he is notified immediately. A customer who hasn’t paid his bills in 180 days does not get product or an employee who continually doesn’t perform is suspended or terminated with cause.
The ability to make quick decisions can be done by anyone. The trick is to make quick informed and ethical decisions that protect the company. Those happen as a result of knowing exactly where you are financially at all times.
Paul Beaudette is President of Leading Edge Business Strategies, LLC, a business consulting firm working with companies to fortify their bottom lines through financial analysis, sales coaching and employee development. He can be reached at firstname.lastname@example.org or (207) 577-1948.