ALTHOUGH it appears that the worst is behind us, ensuring best practice across the range of business functions is more important than ever if an organisation is to ride out the end of the downturn and be ready to take early advantage of opportunities in the upswing.
Strategy is key right now - and any organisation, regardless of size, should look to management accountants for leadership.
In small businesses especially, where manpower and resources are tight and there is less room for mistakes, management accountants are central players in ensuring a company is ideally positioned regardless of the economic climate.
They must therefore put the following considerations front and centre.
1. Forecasting - Identify demand and potential excess capacity over the next 12-24 months. Investigate ways to reduce the cost of these resources, through better labour scheduling if using casuals, for example, or not renewing leases on certain equipment.
2. Reducing your customers' costs - In the business to business space, understand your customers' business and how your products and services can be delivered in such a way to reduce customers' costs. This will allow you to identify the challenges facing your customers and the risks to your sales that you may face. Also, it may also engender a spirit of loyalty in your customers.
3. Supplier discounts - Don't be afraid to ask suppliers for discounts during a downturn. You may be pleasantly surprised with the results. When asking for discounts, use the guarantee of volume to promote a win-win perspective rather than taking an adversarial approach. Upstream and downstream, businesses are facing similar industry conditions.
4. Resource waste - Do a quick audit of your resources and eliminate any waste. Simple things can save money and help the environment - paper recycling, stopping excess energy use, better control of consumable, stationery etc.
5. Fixed and variable costs - Take the time to understand the fixed and variable cost components of your business and track them through regular reporting.
6. Cost control - Understand how external factors influence your business and its cost structure. Focus on those costs within your control. For example, take a critical look at under-performing divisions and those with excess capacity. Minimise losses by closing those parts of the business.
7. Make decisions in the context of the business and the economy - Understand how decisions affect the business overall. A robust, but flexible model will help you to make sound strategic decisions. Industry analysis will show you how well you are positioned in the market. This analysis will help highlight areas of competitive advantage or potential areas of concern. It will also help you understand the global economy and how the economies in which you operate have been affected by the downturn.
8. Cash flow control - Better management of cash flow will not only help to protect you from liquidity problems, it will also improve your bottom line. A disciplined focus on debtors and inventory will release cash tied up in working capital. Reduced working capital requirements will reduce pressure on funding arrangements, which may lead to reduced finance charges as well. Every additional day you improve your operating cycle is worth money.
9. Performance management systems - High-performing businesses that focus on maximising operational efficiency receive significant benefit from using their performance management systems diagnostically. This means they use their performance management systems to monitor key performance variables, enabling them to manage deviations from targets and hold management and staff accountable for pre-determined targets. Efficiency-focused businesses should therefore consider using performance management systems that provide such data, such as the balanced scorecard approach.
This article was contributed by CPA Australia for SME INC
