Identifying Your Business Fundamentals Made Easy

Nick Roberts

I find alarmist reports in the media about poor business conditions very frustrating. Now I appreciate that losing your job or your business is very unpleasant but often, in my experience, a downturn is just the final straw (or a convenient reason to shake out workers who don’t fit) for businesses which haven’t identified and properly managed their business fundamentals:

• Liquidity. No cash equals no business! Most businesses tie up a substantial amount of working capital in debtors, stock or work-in-progress all of which have to be funded. The best businesses focus on reducing their “Cash Collection Cycle” to the point where some e.g. Dell and Starbucks, have negative collection cycles.
• Good Customers. A poor customer can sap your enthusiasm and drain your business of cash. Even if you’ve no capacity for more business you should always welcome new business to enable a gradual improvement in customer quality. If they can’t be “trained” to fit in, in time, they must go.
• Systems. One business survey says that successful businesses pay their bills on time. To me, this indicates they have good systems which save you time, eliminate mistakes, and enable you to work consistently & efficiently.
• Avoiding Risk. Some risk in business is inevitable but excessive risk is best avoided, as we know from recent events! Excessive borrowing, no insurance, lack of planning - there’s plenty of opportunity!
• Growth & Profitability. Profitability is obvious but business surveys indicate a business needs growth to thrive, probably because stagnation follows through customers lost by natural attrition, poor profitability or just falling behind through lack of innovation and failing to meet the needs of customers. 

To conclude, if you’re managing your business fundamentals correctly and you’re in a business that people need, you’re in a good position for 2009 and beyond!

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use “Contact Us” on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.