Fall is in the air. Which means that it’s time for football…falling leaves…and your annual corporate check-up. What exactly is a corporate check-up? It’s a chance to review what took place over the past year, take a hard look at actual versus plan, assess your company’s overall health, and get ready to start planning for the next fiscal year.
How do you conduct a corporate check-up?
Schedule a meeting with senior management, including your company’s CEO, COO, CFO and VP Marketing/Sales. Distribute copies of this year’s strategic business plan (you do have an annual strategic business plan, right?), and have a frank discussion about the following:
• Did you achieve the goals that you laid out in your plan? Why or why not?
•Did your implementation plan turn out to be workable and realistic? If not, what happened that you did not anticipate?
•Did new, unforeseen opportunities arise? If so, did you succeed in taking advantage of them? Why or why not?
•Did you have the right employees to allow your company to succeed?
•Did you have the necessary working capital to grow and thrive? Where do things stand now?
•How strong were your relationships with your major vendors? Where do these relationships stand now?
•How solid were your business processes and IT systems? Did any issues arise?
•Were you able to provide formatted financial reports that everyone from senior management to outside lenders understood and had confidence in?
•Did you make use of weekly dashboards to more effectively manage your business?
The answers to these questions will help you assess the business’ health and inform your strategic business plan for next year. In analyzing the answers, pay close attention to patterns in the things that the company seems to be doing right and areas in which you need to improve. What are the underlying causes of the problems you faced? For example, if you did not have the right employees, what areas did this impact?
Why is an annual corporate check-up so important?
Of course, since conducting an annual corporate check-up takes time and effort, you may be tempted to skip it. Don’t give in to this temptation! This exercise gives the entire team a chance to step back, take a “big picture” look at what’s been going on, and see things that aren’t always obvious when you’re enmeshed in the day-to-day challenge of running a business.
Want to bring in an outside expert to provide a fresh point of view in the corporate check-up process? Give me a call. As a part-time CFO, this is one of the many services that I provide.
In business, as in life, there are “good” surprises and there are “bad” surprises. Winning an unexpected award is good. Discovering that you’re not in compliance with an important regulation is not.
Over the years I’ve seen that many undesirable situations arise because of poor planning, inadequate oversight and controls, and so forth. For example:
Your reported earnings require significant downward adjustments. This is often caused by under-accruing for vacation or holiday pay, bad debts, or your self-insurance reserve. This can happen when (a) someone is cooking the books, or (b) the person handling your financials does not have the expertise to get it right.
• The value of your inventory is grossly overstated. Sometimes this is caused by not having a reliable perpetual inventory system (see “5 Signs that You Need Better Financial Controls”). In many industries, obsolescence is a big issue. Electronics that were fully sellable two years ago at full price may be fairly worthless now. Your financials need to reflect this.
• Your strategic plan did not adequately plan for your growth. Now you’ve got a huge order that you can’t fulfill or you’re sitting on the sidelines watching your competitors take advantage of new market opportunities that you can’t, because you don’t have the resources to do so.
• You’re blindsided by technical obsolescence issues. You failed to plan for the fact that many aspects of your business can be affected by technological changes. For example, obsolete IT systems can become unreliable or inadequate, resulting in a significant negative impact on your operations. Your product and/or product delivery system can become obsolete. If you were selling music via CDs and didn’t see the MP3s coming—or were relying on MP3s and didn’t see the streaming paradigm coming—your sales would take quite a hit.
• You’re losing money on every sale. You could be buying something for $110 and selling it for $105, thinking that you bought it at $90. How can this happen? Not issuing purchase orders can do it. A manufacturer that is using cost accounting standards can also incur this result. Quite often, your actual numbers for raw materials, labor, overhead, etc., turn out to be higher than the standards upon which your cost numbers are based.
Need help ensuring that you’ve got the right people and systems in place to avoid these types of unpleasant surprises? Give me a call. As your part-time CFO, I have the expertise you need.
When a company is first starting out, it is common for the owner/CEO to make nearly all of the decisions. But as a company grows, this approach becomes completely unworkable. Not only is it just too much for one person to tackle, it’s really not the best use of the CEO’s time. Delegating many of the day-to-day decisions to members of lower, middle and upper management becomes a must.
Why establish formal policies and procedures?
Delegation, of course, involves a certain level of risk. How do you ensure that decisions and approvals are made and given in a manner that is consistent with the goals and values of senior management—and in compliance with all applicable laws and regulations—without requiring senior management to be tied up with routine decisions? You establish policies and procedures.
Policies and procedures ensure consistency. They can mean the difference between order and chaos, and compliance and noncompliance. They can also save a great deal of time for everyone involved. After all, when everyone understands the guidelines, decision-making becomes easier.
Establishing appropriate policies and procedures
Depending on the nature of the business, there are a wide variety of policies and procedures to establish. These include:
Sales & pricing – Determining minimum order size and minimum acceptable profit on an order
Extending credit – Evaluating a potential customer’s credit; issuing credit memos
Purchasing – Creating purchase orders; opening accounts with new vendors; approving invoices for payment
Human resources – Establishing employee pay rates and pay increases; allowing use of company vehicles and credit cards
Managerial approvals – Approving expense reimbursements; authorizing corporate travel; signing checks
Legal – Archiving and retaining everything from emails to contracts to financial records
Marketing – Ensuring branding consistency; establishing who is allowed to publicly represent the company to the media
IT – Creating an escalation system; requiring system documentation; ensuring backups take place
Communicating the policies and procedures
It is vital that the policies be written and available for people to see. This can mean putting things in print, uploading them to a corporate wiki, or using some other type of digital document sharing system. For some policies, such as HR-related policies, you’ll want to give each employee a copy in writing and have them sign documentation stating that they’re aware of and have reviewed the policies.
Need help creating policies and procedures that make sense? Give me a call. As a part-time CFO, I’m here for you!