Business Finance Consulting

Financial Ratios – Liquidity Ratios

In earlier blogs, I spoke about the importance of Profitability Ratios, then Efficiency Ratios. In this blog, I highlight the importance of Liquidity Ratios.

Liquidity ratios are used to determine a company’s ability to pay off its short-terms debts. Short term means 12 months and less.

Liquidity ratios can be of enormous benefit to business owners, Directors and Managers when developing budgets. They tend also to be of great interest to lenders, Creditors, potential investors and prospective Managers and Directors when making decisions as to whether or not to join a company.

Common liquidity ratios include the Working Capital Ratio, the Current Ratio, the Quick Ratio and the Operating Cash Flow Ratio. 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.
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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).

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Business Finance Consultants

Waste in the Finance Function? Surely Not!?

In a previous blog, we discussed applying the first principle of Lean (‘adding value’) to the Finance function. Today, let’s consider the second Lean principle: ‘Reducing waste’.

Yes, there can indeed be waste and missed opportunities in any Finance Department.

Here are a few common examples:

  • inefficient collection processes
  • the same data being manually entered several times in different systems
  • reports being generated for people that do not understand them and/or do not use them (in which case they are obviously not helping to guide the business)
  • complex report generation that requires the collection/analysis of data from multiple systems
  • cost allocation that does not add value to the decision making process, and
  • inappropriate budgeting processes that do not deliver outcomes aligned with the strategy of the business.

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Business Finance Consulting

Can Finance be LEAN?

Most of our readers will be familiar with ‘Lean’ methodology and principles, which have been around for a number of years. But, like most people, some readers might primarily associate ‘Lean’ with manufacturing and everything that is linked with production.

In actual fact however, ‘Lean’ can be applied to every function in a business, including Sales, Marketing, Human Resources and Finance.

The Finance function is the same as all other functions in a company: It has processes (accounting, controlling, collection and reporting to name a few), which can be optimised through the application of Lean principles.

The three key Lean principles are Adding Value, Reducing Waste and the Continuous Improvement. Read more

Business Process Improvement

Office Wastes

While much has been said and written about Lean and the 7-Wastes within a manufacturing environment, it is in the office of professional service functions where we often see huge amounts of waste, particularly within the accounting, legal, design and consulting engineering sectors. Below are some of the typical ‘Office Wastes’ that we encounter.

  • Sorting and searching – This applies in all environments, even at home. How much time do you waste looking for files, or information, or tools or items? Although we like to talk about the ‘paperless office’, we know that this is far from reality. Many organisations generate “paper”, for e.g. the medical and legal professions, or any regulatory bodies or departments. How do you track these documents and know, instantly, where anything is? If you manufacture anything, where and how do you track the correct revision numbers?

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Lean and Sigma 6

LEAN and 6 SIGMA – Do they work together?

During the last two decades much has been written about Lean and 6 Sigma, the fundamental premise of the two approaches respectively being the elimination of waste and the reduction of variation. Many large companies have both Lean and 6 Sigma programs that have been branded Lean 6 Sigma, Power Lean, Lean Sigma, Quick Sigma to name but a few. In some cases, companies are using Lean to remove waste from non-value adding activities and 6 Sigma to control the variation within the value-adding portion of the process. The integration of Lean and 6 Sigma has become fashionable, but what are the real differences and can they really work together? 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