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Good Times Mask Bad Practices
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Ready. Fire. Aim.
This twist on the old saw "ready, aim, fire" is the way many people run their business. This impetuous approach often yields negative results.
The more effective paradigm is to engage in good planning so that you will end up using sound business practices. Here are two important tools we have found that can make a significant difference for your business:
- Use a business breakeven accounting process.
- Develop a procedures manual for all the important jobs in your practice.
These two processes may not be sexy--but they work!
A business breakeven approach is a more comprehensive and thorough method for completing a monthly profit and loss statement. The typical accounting approach is to ask: do I have any money left in my checking account after I paid all my monthly bills? This approach is shortsighted and incomplete, because it leaves out several important financial benchmarks. A breakeven approach asks you to list current expenses, but also requires that you fund future taxes, set up cash reserves, cover depreciation expenses, provide for future capital expenditures, save for variable (non-monthly) expenses, and save for retirement plan contributions and bonuses. Using a breakeven approach will allow you to answer this question: am I profitable? No longer is having cash in your checking account the measure of financial success. You must have a business plan so that you account for all your cash requirements--both present and future. In accounting terminology, the breakeven approach is called accrual accounting.
The breakeven approach requires that you approach your business in a comprehensive fashion and plan for all contingencies. If you still have money left over after meeting all of your present and future obligations, you'll then, and only then, be in a position to pay bonuses to employees and yourself.
A procedures manual is another critical tool in effective business management. The purpose of having such a manual for each employee, or position in your operation, is twofold. First, it provides guidelines for training new employees when old ones leave. This helps assure smooth business operations.
Second, and of even greater significance, is the fact that a manual, which should list the procedures for each operation in your practice, will allow you to effectively monitor how well your practice is running. Any time an activity or procedure is not completed in a timely fashion you need to ask why. When the procedures are well-established, you can then go back to this checklist can see where the problem exists. It is virtually impossible to discover the root cause of the problem if you don't have well-established guidelines. If you can't name the root problem, you can't fix it.
Each of these suggestions requires thoughtful and sometimes extensive effort on your part. Successfully completing and using these two business tools will enable you to know precisely how well your business is running, and how to effectively manage the administrative issues that are the foundation of a successful practice.
Please feel free to call me if you'd like help with either of these issues. As always, I offer a complimentary coaching call to anyone who is interested in investigating my coaching program. Please don't keep me a secret; let your colleagues know that I am available.
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Nick is available to answer any of your coaching concerns, and as always, will provide a complimentary coaching session to anyone interested in pursuing a coaching program. Please call Nick at (510) 898-3245 or
email him to set up a session.
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Newsletter
Issue No. 14
February 2009 |
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Sage Advice: Part Two
Most of the economic advice we receive today says something like this: keep the faith, we'll get through this. We know times are tough but we've always gotten through this before, and we will again.
Upon reflection, we don't really know if this recession is like every other business downturn. The important question is: does it make any difference whether this recession is typical -- or unique? I suspect that it does not. What is important is what we do, and the attitude we express in our daily business activities.
What is generally missing from the "keep the faith" advice is how you're supposed to run your business in difficult times. The challenge is not what you do in good times, but how you handle the bad times.
Last month's newsletter had five suggestions for you: (January 09, number 13). I listed: have a good business plan; define your target market; complete assessments on your strengths and weaknesses; manage your cash carefully, and finally, continue to build cash reserves.
This month I have two more suggestions for you; these will prove helpful in developing good habits and help you weather a bad business climate.
I'm a great believer in maintaining a positive mental attitude. But it's equally important to engage in good business practices.
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