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Business Finance Consultants

Financial Ratios – Efficiency Ratios

In an earlier blog (Financial Ratios – Profitability Ratios), I spoke about the importance of Profitability Ratios. In this blog, I highlight the importance of Efficiency Ratios.

In simple terms, Efficiency Ratios measure how well companies utilise their short term assets and short term liabilities to generate income. Efficiency ratios, for example, might include the time it takes for companies to collect cash from customers, how quickly or slowly they pay their suppliers and the time it takes to convert inventory into revenue.

While Efficiency Ratios are generally used by management to help improve the company, they are also often used to inform outside investors and creditors of the operational performance of the company.

Let’s consider a couple of examples of Efficiency Ratios:

Debtor Days tells you how many days it takes for the money to reach your bank account after you have issued invoices. The lower, the better. A decrease in the ratio is good; an increase should be regarded as an alarm bell.
Debtor Days = Debtors (Net of GST) / Annual Sales x 365

Creditor Days represents the average time that a business takes to pay its Creditors. The higher, the better.
Creditor Days = Creditors (Net of GST) / Annual Cost of Goods Sold x 365 Read more

Business Finance Consulting

Lean Finance – Continuous Improvement

After having in previous blogs highlighted the first two principles of Lean as they relate to the Finance function, Adding Value and Reducing Waste, let’s talk about the third and final principle of Lean: Continuous Improvement.

Broadly speaking, Lean projects need to commence with a Lean Analysis to assess the existing situation and determine the scope of the Lean Transformation project. From this, the Lean Transformation project can be further developed and implemented, focussing on opportunities to add value and reduce waste in order to optimise outcomes for the company (i.e. including the Fat Profits referred to in our book ‘Lean Business,Fat Profits’).

However Lean does not end when the Lean Transformation project is completed. Lean is a mindset, continually looking for incremental improvements.
Read more

Business Process Improvement

Process Improvement – Mapping

In order to improve any operational process and provide greater customer value, business processes first needs to be understood, and the easiest way to understand a process is by drawing or mapping it. Mapping forms the basis of all process improvement as it shows:

  • The current state i.e. “this is how we presently do it”
  • The link between information and material flow
  • Mapping visually describes your facility…..a picture is worth a thousand words
  • Highlights process steps and identifies areas of waste. Remember the general rule: “The more process steps, the more waste a process has”
  • Supports team-based improvement
  • Provides a model and common language for Continuous Improvement (CI).

Read more

Business Strategy Consulting

Aligning Sales Strategy with Business Strategy

Sales strategy must be aligned to the business strategy… That sounds like common sense… however Wayne claims it doesn’t happen in many businesses and their bottom line suffers as a result.

“It’s a matter of making sure that whatever the business strategy you deploy in order to win at business your sales processes should reflect that”.

View Wayne’s latest appearance on Strategic Selling Group for further insight on this subject or watch the video below:

 

Business Finance Consulting

It’s Payback Time! …or is it?

Everyone facing a business investment decision, such as launching a new product, purchasing equipment, installing a new production line, building a factory or acquiring a business needs to ask themselves the following questions:

How long before I get my money back?
Which of these investments is better?

The Payback Analysis provides us with a means to answer these questions by clarifying the length of time (weeks, months or years) required for an investment to reach breakeven, before it begins returning a profit. This length of time is called the Payback Period.

The calculation takes into account Incomes, Expenses (*) and Taxes. The shorter the payback period, the better. The longer the payback period, the longer funds are locked up and the riskier the project.

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Are We Overthinking Strategy?

I have been a student of business strategy for most of my 40 year career and have seen fads come and go. But even with this background I was surprised to read in recent Harvard Business Review articles that:

  • Corporations spend on average 7 months of the year in strategic planning, and
  • There are now over 80 recognised strategy options that have been introduced since the ‘grand-daddy’ of strategy, the Ansoff Matrix was introduced in 1958.

Today, those responsible for guiding the future of businesses face a constant barrage of advice on what is the ‘next big thing’ with respect to strategic options. Be it PEST, Red Queen, 6 Sigma, Diamond Model, Blue Ocean strategy or any of the 80+ options listed by HBR, these are simply tools to help us better achieve the objective of strategy – to create, capture and retain long term value (equity). Read more

Thinking Outside the Box to Win Sales

In both our personal and business lives, the decisions we make today are largely the result of past experiences, relationships and the values that were ingrained in us as we developed.

Good or bad, our past will have an impact on our future and all too often restrict the decisions we make and limit our growth. This is natural and many of us are aware of this and actively work to address the issue.

From a business perspective, such thinking can limit our careers and our personal and business potential. As markets change so to must the way we approach business. A lot has been said and written about disruptive innovation, and what has happened to those businesses that got stuck in the past (think Sony Walkman, Kodak, Swiss watches), but ultimately it may just be a case of changing the way we think about the obvious.

I came across this story on a friend’s Face book page today which I think demonstrates this idea perfectly. Now I think the story has been around for a while and I am unsure whether this is a true story or not, but it does highlight just how we can be constrained by not thinking outside the box.

Consider this:

You are driving down the road in your car on a wild, stormy night, when you pass by a bus stop and you see three people waiting for the bus:

1. An old lady who looks as if she is about to die.

2. An old friend who once saved your life.

3. The perfect partner you have been dreaming about.

Which one would you choose to offer a ride to, knowing that there could only be one passenger in your car? Read more

LEAN Misconceptions – Only for ‘Big’ Organisations

LEAN Misconceptions – Part 5

The Lean Philosophy has been around for many years, but unfortunately it is not always understood, predominantly because Lean is thought to be:

  1. A cost reduction exercise
  2. A process to reduce the number of employees
  3. Only applicable to ‘manufacturing’ organisations
  4. An ‘operational’ issue that can be solved by the ‘operations people’
  5. Only for ‘big’ organisations.

Nothing could be further from the truth!

In this series of articles, I will discuss each of these misconceptions and demonstrate that Lean is about business; any and every business. A Lean business strives to understand what the customer really values, and then maximises customer value. Lean is not a short-term fad, but a long-term commitment towards continual improvement that involves every system, every process, every department and every employee within the organisation, irrespective of it’s size.

Misconception # 5: Lean is only for ‘big’ organisations

Lean is applicable in EVERY organisation as long as there is an understanding that every function or service provided by any person, department or organisation is a process that can be documented, standardised, and most importantly, improved. Improving any process necessitates the identification of waste within the process, where waste is defined as any activity that adds no value as seen from the customer’s perspective, i.e. the extra (wasted) time, labour and materials spent producing the product or service. Using the above premise and the fact that no business process is waste-free, Lean can be implemented in any environment, as every business process can be analysed and improved. Read more

Business Process Improvement

LEAN Misconceptions – Operational Issues

LEAN Misconceptions – Part 4

The Lean Philosophy has been around for many years, but unfortunately it is not always understood, predominantly because Lean is thought to be:

  1. A cost reduction exercise
  2. A process to reduce the number of employees
  3. Only applicable to ‘manufacturing’ organisations
  4. An ‘operational’ issue that can be solved by the ‘operations people’
  5. Only for ‘big’ organisations.

Nothing could be further from the truth!

In this series of articles, I will discuss each of these misconceptions and demonstrate that Lean is about business; any and every business. A Lean business strives to understand what the customer really values, and then maximises customer value. Lean is not a short-term fad, but a long-term commitment towards continual improvement that involves every system, every process, every department and every employee within the organisation, irrespective of it’s size.

Misconception # 4: Lean is an ‘operational’ issue that can be solved by ‘operations people

Largely due to the fact that Lean “grew up” in the manufacturing industry (see Lean Misconception #3), there is still a strong belief by many managers and business owners that Lean is an ‘operational’ issue that can be solved by the ‘operations people’…..nothing could be further from the truth.

In very broad terms, Lean consists of two components….. technical and strategic, often referred to as the ‘hard’ and ‘soft’ sides of Lean. Firstly the technical side.

Read more

Lean Business – Myth or Reality?

LEAN Misconceptions – Part 1

The Lean Philosophy has been around for many years, but unfortunately it is not always understood, predominantly because Lean is thought to be:

  1. A cost reduction exercise
  2. A process to reduce the number of employees
  3. Only applicable to ‘manufacturing’ organisations
  4. An ‘operational’ issue that can be solved by the ‘operations people’
  5. Only for ‘big’ organisations.

Nothing could be further from the truth!

In this series of articles, I will discuss each of these misconceptions and demonstrate that Lean is about business; any and every business. A Lean business strives to understand what the customer really values, and then maximises customer value. Lean is not a short-term fad, but a long-term commitment towards continual improvement that involves every system, every process, every department and every employee within the organisation, irrespective of it’s size. Read more