Macro and microeconomics for your firm from Steven Burns, FAIA, on how you should combine a top-down vs bottom-up hybrid approach.
Avoid These 10 Simple Things that Can Put You Out of Business
Ups and downs are a fact of business. But avoiding these 10 simple things will help you make sure the ups are far more frequent than the downs.
All businesses experience ups and downs but sometimes it’s the little things that can put them out of business. Here are 10 simple items to watch out for to keep your business strong and healthy.
1 – Not keeping up with accounts receivables
Too often, bookkeepers are focused on payroll, accounts payable, credit card management and other bookkeeping tasks that involve cash out. But unless you focus on cash in, there won’t be enough money to cover the cash out.
Often, the owner or project manager is so swamped with the day to day duties of managing projects and jobs, that the invoicing for those projects fall by the wayside. Also, the task of creating invoices for clients may be held up because the owner or project manager wants to maintain control of the documents that go to the customer (Related: Time and Billing: Your Two Biggest Friends or Foes?).
I’ve seen many companies where the owner is the bottleneck of the invoicing process, so much so that the priority to send the invoices falls behind until the need for cash becomes urgent. Utilizing a good time and billing software can improve this process.
2 – Buying projects or customers
Sales is the life force of most companies. And salespeople worry about a drop in the volume. So instead of creating a pricing schedule based on value, it is based on fear.
Certainly, if you lower the price of any project or product, the odds of winning the bid or making the sale improve. But lowering the price to a point that is not profitable can easily put a company out of business. It’s a fallacy to believe that what you lose in profit you can make up in volume.
Consider increasing your price, doing less work, but having the work you do be more profitable.
3 – Not managing insurance
Whether it is worker’s compensation, general liability, auto or health insurance, the task of analyzing the different policies and making sure the coverage is what the company needs often falls to the back burner. Then, when it’s time to renew, many companies just sign up again for the same coverage as the year before.
Every company needs to do an annual audit of all insurance policies to make sure each policy has the correct coverage and is the most economical. For example, I know companies that have had increased volume, leading to increased payroll, leading to increased worker’s compensation and liability insurance. But they weren’t paying attention and when the yearly insurance audit came through, they owed a substantial amount of money.
The hit to cash flow was significant and put them in jeopardy of cancellation of their current policy (Related: Business Cash Flow Management: Cash Flow Management Strategies).
4 – Not Focusing on Internal Controls
You work hard for your money, you should be able to keep it. But according to the Association of Certified Fraud Examiners, the median loss incurred by small businesses due to fraud and embezzlement is $160,000, significantly more than the typical loss suffered by larger businesses.
It’s not just cash that walks out the door. Other fraud schemes include theft of clients, services, supplies, and even insurance. Some employees have been known to engage in bartering with clients for personal gain, expense reimbursement abuse, misreporting of hours, and many other ways that employees find to enrich themselves at your expense.
It’s not a question of “if” but “how much.” Creating a process of internal controls will help you catch fraud sooner and limit your losses.
5 – Not focusing on the schedule
If you do projects for clients, taking longer than expected ties up your resources to do additional, more profitable projects. So besides having unhappy clients, you now spend more money on additional overhead by expanding the time a project takes without increasing the price.
Using project management scheduling software can help, but only if you create a time budget for each project.
6 – Not Paying Attention to the Last 20%
Some projects just drag on and on. Imagine how profitable your company would be if you only had to do the first 80% of every project.
Projects should always have an estimated end date, and someone in your office needs to keep track of what is needed to wrap up the project (Related: 5 Must Read Project Management Books for Accountants). Good project management software can be a big help when trying to manage various employees, projects, and staffing.
7 – Wasting time on repetitive tasks
Too many companies don’t use the software they have because of several reasons.
Some employees say: “I’ve always done it this way,” and aren’t willing to learn a better (or even easier) way. While others have made one mistake in the past, so they create a process to do and redo tasks, so that one mistake can never happen again.
Another reason employees are not productive is that they never embraced the software to begin with. Whether it’s accounting, project management or time and expense and billing, the employees either never had training or never bought into the idea of change.
Finally, too many employees fall back on Excel® to create repetitive processes. Employees often think molding a program they are already comfortable with will be easier than learning a new accounting practice management software. Excel is a great product, but there are many cases where the person creating the spreadsheet is not the person using it and the formulas stopped working months ago.
Find out how many times data is entered into different products, the same product, or multiple spreadsheets to find ways to improve productivity.
8 – Not focusing on employee utilization
Employee Utilization (or Labor Efficiency) is a metric that is key to keeping your business afloat. This metric measures how effective your employees are at generating revenue. The math behind it is simple: Total Billable Hours divided by Total Hours Paid is Employee Utilization.
Most employees work the same hours each week or get paid the same amount, even if their workload fluctuates. So when the volume falls, you are paying more for each billable hour. Helping your employees spend more time on income-generating activities will keep the doors open.
9 – Having too few or too many employees
Another metric to track is Revenue per Employee. This metric is good since it can be predictive and help you manage the future instead of the past.
If you can determine the most profitable ratio of employees to revenue, and you can forecast your revenue, you can know earlier rather than later if you need to increase or decrease your staffing.
10 – Failure to Communicate
A dedicated productive staff is the key to staying profitable. Don’t assume everyone knows what’s going on.
Employees want to be involved and they will be more productive when they feel valued.
Clients are the same – they can handle bad news when forewarned. Ghosting clients, vendors, or employees because you don’t want to have the hard conversations will only make things worse, not better. Find ways to stay in touch with your whole universe of contacts.
Curious about what other mistakes your company might be making? Click below to download a free eBook on 10 fatal project management mistakes and how to prevent them!