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Is Your Business Race Ready

Mar 14, 2010

The Race Across America (RAAM) is the toughest cycling endurance event in the world; a non-stop, continuous race in which cyclists race 3,000 miles from Oceanside, CA to Annapolis, MD.  RAAM participants face challenges beyond cycling that include scorching heat, violent winds, and even tornadoes, altitude, and the dark of night, sleep deprivation, navigation, and mental acuity.   Because of the demands on the riders, crew and equipment – being ‘RAAM Race Ready’ requires tremendous preparation beyond fitness.  It requires a strong foundation, proactive scenario planning, and practice.  Navigating ‘through the elements’ is the most critical aspect of your plan - as it doesn’t matter how fast you ride if you are off course. 

How do you navigate through unforeseeable challenges?  You can’t always execute predictably as there are always variables that you can’t control - but the key is to have a strong foundation.  The same holds true for business.  As I prepare for RAAM, I am reminded of the very same principles that I deal with in business.  Having a solid foundation and understanding your true financial position is a critical step to increase the value of your company and maximize your chance to ‘weather the storm.’

Many companies that I visit have a general idea of their financial position but really haven’t looked close enough and asked the right questions to truly understand the real strength of their foundation. As a result they end up being reactive to situations which utilizes more resources and ultimately will cost a lot more money. 

Below are the most critical parts to build a strong business foundation.

Cash is probably the number one area of concern in any business yet so often cash management is very low on the priority list.  Many business owners track cash by keeping an eye on their bank balance.  In order to succeed we need to record data daily in order to prepare proper cash flow projections. Cash flow projections are the key to making smart, profitable decisions.  Well managed companies utilize these tools to proactively navigate challenges through early detection and proper planning.

Next up is accounts receivable.  What is the real value and true collectability?  Having old or invalid receivables on your books reduces the quality of your business not to mention lowering your cash flow and eligible collateral.  A potential buyer will discount a business without a clean and current accounts receivable aging and a bank will most certainly lower the amount of available credit to you.  This is an even greater area of concern during a growth spurt.  Proper training and procedures are necessary to successfully manage receivables to provide greater financial clarity.

Another very misunderstood area is inventory.  How much of your inventory is really saleable and when?  Maintain inventory for only your top selling items.  Scrub your inventory often and closeout any slow moving or obsolete inventory.  Knowing what to buy and how often is definitely an art but one worth the investment.  Inventory that sits on your shelf may actually be costing you more than it is worth.  Building an order process to help you control your inventory and preserve cash is a tremendous asset.   

Knowing the true condition of your assets is critical to building a strong foundation but there is another area to watch.  The silent killer in the business foundation is overhead.  How solid is your infrastructure?  Do you have the proper systems in place to provide the greatest efficiency and proper visibility to your business?  If not your overhead cost is likely much higher than it could be. 

Is your business RAAM RACE ready?  Knowing the true strength of your foundation is the critical first step.  Call for your free business checkup - it doesn’t matter how fast you are going if you venture off course!

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