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Do You Want to Make Your Annual Budget More Effective? - Oct 4, 2010

Posted by: Nick Picciuto in Articles

Do You Want to Make Your Annual Budget More Effective? 

Think SWOT and 10 Level

It’s that time of year again!  It’s time to start thinking about 2011.  Are you one of those people who cringe at the thought of the annual business planning process?  Love it or hate it, this process is a key ingredient for success.  I’d like to suggest two tools that might make your annual planning process more effective:

1.    Start with a S.W.O.T. Analysis

2.    End with a 10 Level Analysis

S.W.O.T. Analysis

All good annual plans start with some derivation of a S.W.O.T. Analysis.  What is a S.W.O.T. analysis?  It is simply a brainstorming and prioritizing of your company’s Strengths, Weaknesses, Opportunities, and Threats.  Let’s take a look at these more closely:

Strengths consist of all of the things your company does best.  Some people call these your core competencies.  These might be the things that give you a competitive advantage in your market or industry.  For a consumer products company it might be how you manage your brands.  For a manufacturer it might be your outstanding quality.  For a service organization it might be your long established relationships.  I once worked for a company whose strength was its management philosophy and corporate culture that fostered and nurtured autonomy and decisiveness in its operations.  The resulting strength was great responsiveness to the customer.  Whatever it is that your company does best, write it down.  The goal of listing out your strengths is to identify your core competencies so that your plan for next year will include strategies on how to leverage your strengths to grow sales and market sha....

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Take Care of Your Cash - Jun 29, 2010

Posted by: Nick Picciuto in Articles

In these tough economic times, in fact in all economic times, small businesses need to take care of their cash.  How do you know that your cash is taken care of?  Do you have internal controls in place to safeguard your cash?

Internal controls are the foundation of all sound businesses practices.  What are some of the internal controls that help safeguard cash?  We can characterize cash controls into the following categories: signature authority, purchasing authority, expense controls, and working capital controls (inventory controls, receivables controls, and payables controls).

Signature Authority

Who has check signing authority in your company?  Is it limited to the owners, principals, or officers of the company?  Is a counter signature required?  Is access to check stock restricted?  Is there a segregation of duties between persons responsible for running, or writing, checks and persons authorized to sign? 

Purchasing Authority

Do you require a purchase order for all purchases?  Not just materials and supplies, but purchase orders for services and outside labor as well?  If you use purchasing cards, do you establish spending limits, as well as sic code restrictions, depending on the cardholder’s position and responsibilities?  To whom have you given purchasing authority and up to what limits?  I was once affiliated with a manufacturer who had given their tooling engineers carte blanche authority to order tools, without a purchase order, via verbal authorizations.  Needless to say, the tooling expenditures were always over budget, both in usage as well as cost.  (By the way – this policy was changed within 30 days of my arrival).

Expense Controls

Do you have a budget for operating and administrative expenses?  Do you track and compare actual expenses to budget?  Does this budget flex the variable expenses (those that are directly, or indirectly, tied to sales volume) to your actual sales volume levels?  In other words, if sales volumes are off 20% do you have mechanisms in place to reduce variable expenses in proportion to the lower sales volume?  Do you monitor actual expenses to budget throughout the month or not until the books are closed?  Are your expenses budgeted by department or by key management person?  Are these people held accountable for the actual versus budget results?

Working Capital Controls

Who’s watching the inventory days on hand?  Do you have a process in place to identify, or better yet prevent, the obsolescence of inventories?  The more inventories you carry the less cash you have available for other uses.  What about your receivables?