How to Optimize your Resources
“Entrepreneurs believe that profit is what matters most in a new enterprise. But profit is secondary. Cash flow matters most.” – Peter Drucker
Meriam Webster defines assets as “the entire property of a person, association, corporation, or estate applicable or subject to the payment of debts.” This dictionary definition however does not incorporate intangible qualities that bring value to a company. These qualities could be the knowledge, skills, and ability of your organization’s personnel. You wouldn’t keep your best electrician’s journeyman’s certification on the balance sheet but your company’s wealth of knowledge and expertise is just as important to growing your business as the building and fleet of vehicles it operates out of. To optimize your resources your business should have a solid time management, effective support team and the continuous review of financials.
Time management is a skill that many people are not naturally gifted with. There is a saying that sums it up pretty well:
If it weren’t for procrastination, I wouldn’t get anything done.
People tend to engage in work they understand, enjoy, or what they consider essential before diving into routine or boring tasks. Admin or clerical work can routinely be shifted to the back burner and then forgotten about completely. When a company shifts or expects revenue generating employees such as sales, operations, or ownership to keep up with the bulk of essential admin work required to avoid an administrative nightmare, they are inadvertently reallocating resources, time, and assets. These resources could be better spent on other missions. Imagine the following scenario: An owner no longer is drumming up leads and managing operations, instead they are spending 20 minutes waiting for their spouse to send the security question answers to access their cell phone company’s website to pay the bill on their turned off company phone as no one processed the payment before it got shut off. Now they have wasted their time, have to pay a late fee, and thinking of other past due bills that haven’t been processed. Assets reallocated?
1. Cash – the late fee was avoidable
2. Time – it’s the law of nature when something in admin is on fire, it takes twice as long to resolve
3. Expertise and skills – the skills of the owner are above processing routine bill payments, their job is to review and approve cash flow in and out, not be the one processing the transaction
The above hypothetical situation perfectly illustrates the importance of an effective support team.
Even though a company would not keep a journeyman’s certificate on their balance sheet, they also probably do not want their best technician spending hours in the weeds processing payroll either. An effective support team can help with the background logistics in conducting smooth operations. Efficient accountants can help a company transition from reactive responses to proactive measures and pull the owner, sales, and operations from the weeds like dandelions in a tomato patch. Instead of being burdened by hunting and gathering information every time a vendor needs to be paid, a good accountant can ease that affliction with some simple organization and availability abilities. A great accountant can learn to anticipate a company’s needs and ensure reporting, approval routing, and routine transactions are handled seamlessly. A good support team can free up many intangible resources that allows an owner to focus on where their operations can use some strengthening. One of the most important areas an owner can divert their attention to is financials.
Some small business owners tend to shoot from the hip and do a guesstimation on where their businesses stand. At year end (or 6 months after year end) many times owners are surprised at where they actually were. If these important financial reports were reviewed on a monthly basis, the owner and upper management could pivot their operations based on metrics such as gross margin, net profit, accounts receivable turnover and inventory turnover. The cash flow statement is also extremely important as it analyzes the liquidity of a company. It shows an owner if the company is generating enough money to cover its debt obligations and fund operating expenses. While seeing growth on an income statement is nice, profits can increase and cash inflow remain the same or decrease as sometimes sales are tied up in accounts receivable and no money has been exchanged. Reviewing the balance sheet, cash flow and income statement can prevent an owner being caught off guard when the operating bank account starts looking a little bare. Reviewing financial reports on a routine basis can also limit the guesstimations an owner makes and give them resources to optimize their skills and abilities.
Optimizing a business’s resources is crucial to its growth and success. A company’s assets can be tangible or intangible and both types need effective management and support to fully maximize their potential. Time management, effective support, and routine review of financial reports can help optimize your resources and kick your assets into shape!
Reach out to Blue Collar Advising for more ideas on Kicking Assets!
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