|by: Stephan Szugat|
|Simple and effective Business Management|
In every enterprise, there are, at every time, one or more bottlenecks, which have an influence on the commercial situation. Bottleneck-oriented business management has the purpose to early track the bottlenecks and to remove them, to allow an optimum of commercial development. To know at any time, what a business lacks and to be able to add the missing things, is today a determining competitive advantage. Bottlenecks can be, e.g.:
– low sales proceeds
– high due or overdue accounts receivables
– low liquidity (Cash on Hand, etc.)
– high amount of liabilities
– low number of customers
– too many new customers
– too high capacity utilization
– defective administration or management
and a lot more.
These examples show that bottlenecks not only concern negative circumstances but also can apply to positive commercial development. If an enterprise takes up many new customers, this results in new orders, which lead to other circumstances, like a possible excess in capacity utilization. In case the excess of capacity utilization stays for a longer time, this may result in lower employee motivation, because of a slump in the working atmosphere within the company, which then could lead to less quality of the work performed.
Due to a TIMELY reporting system, many companies take care of reaching the desired commercial development. However, a regular analysis of expenses or the annual reports are not enough to control a business today. In today’s dynamic markets these evaluations are too statical, too much oriented on the past commercial development, which had been achieved. Also, cost accounting only shows what has happened in the past. The actual direction in which a business is running could not be seen.
Imagine a business to be a car. If you sat down in a car, do you like to receive information from the instruments from the last year or month? Probably not. You would like to have actual information about fuel tank content, coolant temperature, and a lot more. Bottleneck-oriented business management should exactly bring the most important and actual information about a business to you, including so-called early warning signals.
Data-oriented to the past for early-warning systems?
A working early-warning system needs data that are not oriented to the past, like from cost accounting or year-/month-end-closings. It needs data from so-called early indicators, which have to be gathered from different areas of an enterprise. Of course, figures from the finance and accounting department belong to an early warning system, but they only have a subordinated role, because they are oriented to the past.
Nowadays the reporting must show the present situation of a business. In many businesses, the expenditure of time for the reporting rose considerably, due to today’s flood of information. Aggravatingly added to this, is the selection of the really relevant business ratios, which allow an appropriate overview of the actual business situation. Too often reports are prepared, which are not perceived by anybody, due to the lack of necessary statements about the business development.
There are already proven business-ratio-systems, that enterprises only need to take over. Get back into the car again, imagine you have only one instrument in front of you, which shows the value “35”. What does this signify? It is not recognizable how much fuel exists, how the Temperature of the coolant is or how fast the car is driving, etc.
In this example, you could recognize the little expressiveness of only one business ratio. It shows the importance to use the right business ratios, which must have a connection to each other and which have a different temporal origin. Nevertheless, many business ratio systems are mostly based on data that originate from the past.
This turns often to the problem, that immediate information is not available, to indicate the actual situation of a business. However, there is still the alternative, to reduce the period of the past. How would it be with one week instead of analyzing business data every 4 weeks? This would lead to the fact that you could act a few weeks earlier if something should run a little bit inclinedly.
Only very few data are needed to receive an informative evaluation. This again is comparable with a car. If you are driving in your car, you only receive a small, well-chosen number of information and nevertheless, have an actual picture of the situation. This is also possible for businesses, as well!
As a motorist, we receive only one fraction of the data which is acquired by the system of the car, and just these fraction of information is enough for us to reach the desired destination. When traveling usually we are well prepared, but the principle of the preparations is often neglected in business operation. As it is with traveling, the final goal has to be clearly stated by the business management. This could be done by having planning data available. Only by target/actual comparison divergences of the commercial development will be recognized.
Unfortunately, many small businesses renounce using plan data. Besides, it is not about, to cut plan data into the smallest pieces, but only to get a rough picture, what the business is going to achieve. It is absolutely possible to run a business on the basis of the figures from the previous year, however, to use these figures, the past commercial development should be taken into consideration. So the figures from the previous year should be improved to fit with the new goals. And finished are the planning data and the basis for operational risk management are laid. Still, if it is most important to know the actual bottlenecks in business operation.
Recognize problems and act!
One of the most important factors in business management is the early recognition of problems and potentials. There are bottlenecks in every business, which could have serious results. Pecuniary difficulties could lead to bankruptcy for example. Therefore symptoms must be recognized early, in order to turn a possible crisis away and to secure the future of your business. Also to use available potentials, regular analyses should be done. Nowadays products and services could not be sold forever, because product cycles become shorter and shorter due to market dynamism. The recognition and development of potentials is exceptionally important, to avoid losing the already achieved basis of a business.
About the author:
Stephan Szugat is the founder of amenities a web-based service about Business Management Solutions focusing on the core needs of business management. This includes operational and strategic analysis especially Early-Recognition-Systems, Knowledge-Management, and other services for small and mid-sized businesses. He has approx. 15 years experience in the Finance and Accounting Area from companies of different sizes and from various industries. http://www.abenetis.com