2016

Kevin Howell

[ Company name ]

1 / 1/2016

The Introduction – A Culture of Problem Solving

Great long-term decisions are made by combining measurable goals with the art learned from

experience and knowledge.

My story begins with a crude simplification of the world into three buckets: qualitative – the observers

of characteristics of value; quantitative – the number lovers; and the ambidextrous – folks like me that

blend these two sets of skills to solve problems.

Over the last 15 years, working as a

consultant with Fortune 1000 and

publicly traded companies in the

Caribbean and North American markets, I

have been exposed to several types of

businesses and entrepreneurs.

Repeatedly, I see the success or failure of

these businesses hinging on the quality of

their business management - of which financial management is core. I have become more resolute

that without good financial management businesses will struggle or even fail. Good financial

management offers potent x-raying tools that can be used to increase a business’ success through

ongoing and regular assessments, reiterations and timely adjustments.

For a little while let’s compare strong business management or path to business’ success to the process

of achieving a perfect photograph. When we use our smartphones to snap photos, we often leverage

the image option to determine if a photograph meets or falls below our expectations. If the photo

meets the mark, there is no reason for you to snap again, unless you decide to shift the bar. If the photo

exceeds expectations, you might want to tweak your best practices to ensure that future snaps yield

similar results. However, because none of us can tell the future, oftentimes, the photo might miss the

mark and will need to be adjusted and snapped again and again until it’s perfect. This exercise of

planning, executing, then measuring and tweaking forms the basis of true problem solving in any

business. The accounting team supports the reporting of performances from all functional

departments. However, all functional and/or strategic areas should be engaged in the process of

problem-solving. The sales and marketing department has a responsibility to project and track the

sales pipelines and to be clear about all the benefits and impediments associated with seasonality,

competition, pricing and customer feedback. Similarly, the operations and procurement department

are responsible for ensuring that the cost of production from sourcing to fulfillment is managed and

operational efficiencies are maintained. The human resources department must be clear on the

importance of hiring the right people and ensuring the proper onboarding of new employees: training

and coaching being provided within budget constraints and with minimal risks to the company. All

other support or strategic functions such as technology and research and development are also required

to maintain and engage with the culture of problem-solving.

It’s important for me to stress that financial management is not just the responsibility of the finance

and accounting department, it is the responsibility of all functional areas. I know you might be

laughing under your breath, as you are the Finance Manager, the Marketing Officer, the Operation

Manager and all the other managers in your business. This is surely not a problem; it just means that

you must manage all the functions with fiscal responsibility. I have included some tips for approaching

problem solving in your company:

Establish SMART goals and benchmarks.

Execute based on plans - deviations will happen but not being able to stick to a plan, may be

indications that your planning process is not optimal and needs an overhaul.

Track and monitor all results from execution and report any deviation from the benchmarks.

Adjust and remediate deviations on a timely basis.

Report successes and failures to all required stakeholders.

We always hear the phrase timing is everything. Most businesses only see financial reports at the end

of the year when it’s time to do taxes. Similarly, these businesses only consider operational efficiency

and cost management when they find themselves in cash flow binds. If your business falls in any of

these categories, you are not a problem solver. Problem solvers are proactive and see the problems

ahead of time and track results during execution to ensure prompt remediation. Trying to address

deviations twelve months after the fact is inefficient, risky and unprofitable.

Throughout this book, I will use real life perspectives and anecdotes from my dealings with small

businesses and entrepreneurs to help you to grow and expand your businesses. I do not expect you to

be an accounting or finance guru after reading this book. I, however, hope that you will build a strong

fiscal culture in your organization and apply the tools and lessons throughout this book to grow your

business.

Beautiful Numbers – How they Help you to Spot the Truth?

I have five bucks in my pocket, said Tony. Prove it, says Tom. Here we go, 1, 2…5. You

can fight over many things; you just don’t want to fight about the fact that numbers offer.

Many savvy business people over the world review three key financial statements to understand their

businesses. Their focus tends to be on what is the current performance and how to make it better. In

short, they are asking the question, is their business healthy?

These three important tools used to answer questions about the past and ask questions about the future

are income statements, otherwise called Profit and Loss Statements, Balance Sheets, and Cash Flow

Statements. These statements serve different purposes and are more potent indicators of the company’s

health when reviewed understanding their unique relationships with each other.

Though Financial Statements Analyses will help you diagnose the state of your business; they often

do not provide the answers or solutions to the “whys”. Notwithstanding, they will provide structure

for you to ask the right questions and probe the validity of the conclusions. This process usually leads

to the best answers. As a manager of your business, if you do not know the problems, the problems

cannot be fixed. I have often applied these four steps to understanding and using financial statements:

Identify the facts that are represented by the numbers.

Identify the key drivers of the facts. What are the causes for changes in numbers?

Determine the drivers that have changed.

Derive, document and apply the appropriate conclusions.

Let’s say you observed a decrease in your business revenue of 15%. To understand the reason for this

decrease, you must look at the main drivers of revenue. Recall, revenue is equal to price multiplied by

quantity. Do you observe a change in prices? If prices are not decreasing, you would know the changes

would have to be in lower quantities sold. The analytical process would result in you assessing

quantities to spot the cause (s) of the decline. Did you lose customers to competitors? Did customers

just buy less this period? Did your company discontinue a product line? There could be many other

reasons why the number of customers declined; financial analysis helps you to probe the sources of

the decline and to come up with the solutions to address them. You should note, there could have been

instances where prices charged and quantities sold had both changed.

Red flags raised by financial statement analyses should be the springboard for further investigations.

Forming hasty conclusions, without adequate probing, could be detrimental to your business. The

results of your informed conclusions should be carefully assessed and necessary corrective measures

for improvements or avoidance in the future be systematically applied.

The Financial Checkup

A Healthy Individual and A Healthy Business

I titled this book “All You Can Eat” as I believe there are subtle parallels between maintaining a successful

business and a healthy lifestyle.

A business in legal terms is a “person” and requires as much care if it will generate the anticipated

success. A good diet of food, exercise and balanced social and psychological interactions are key

building blocks to a holistically healthy individual. Similarly, a balanced diet of the right products,

right infrastructure (team and operation machinery), right markets and a focused and flexible

strategy increase the potential for recurring success in any business.

As you know, this book has nothing to do with eating, but rather about business management. So,

you might now be asking yourself the question, what was the point of the previous paragraph? I

answer your question with two questions:

• How do you ensure your business is healthy?

• Have you done your regularly business check-up?

The Check-Up

We are encouraged to see the physician regularly, especially as we get older. Problems left

unattended can be quite costly to correct. Eradicating Stage 3 or Stage 4 cancer is much harder than

becoming free from early stage cancer.

Similarly, putting your business under x-ray regularly, at minimum monthly will increase your

ability to duplicate success and mitigate and fix inefficiencies. As you get older, you are more

susceptible to certain types of ailments and thus you do more targeted testing to reduce impact. So,

is it important to initiate diagnosis and TLC of high risk and impact areas of your business to reduce

fatality?

Hospitalization can be costly; insurance costs are high – even with Obamacare. A sick business can

lead to missed opportunities, irrational and detrimental budget cuts and cost reductions, layoffs and

fractured staff morale and unhappy creditors. Even more dreaded, we might see a filing for Chapter

11 or 13 or a death certificate.

Financial analysis is the Check-Up. A shrewd business owner should want to know what is working.

Once the diagnosis is understood, you can make the right moves to streamline, strengthen or change.

A check-up can answer several questions or give the basis for a business owner to probe further.

The financial statements dashboard below highlights some basic questions that a financial statement

review can answer using ratios and trend analyses. You should note that a good dashboard should

have both financial statements and non-financial statement ratios.

ALL YOU CAN EAT FINANCIAL STATEMENTS DASHBOARD CHECKLIST

Questions Every Business Should Ask Quantitative Tools to Answer Questions

• Are there changes in the key revenues and cost

drivers of the business?

• How does customer view products and services

and is this reflected in sales?

• How does your business stack up against the

competition?

Profitability Ratios

• Growth in revenue year over year

• Growth in revenue by segment

• Total costs as a percentage of revenue

• Direct cost as a percentage of revenue

• Operating expenses as a percentage of revenue

• Analysis of business pipeline

• Is the business making a profit or loss?

• What product, services or division is driving

profits or losses?

• How much tax is your business liable for?

Profitability Ratios

• Gross margin %

• Net margin %

• Gross profit by product or services segment

• Earnings before interest taxes depreciation and

amortization (EBITDA)

• Are you collecting receivables timely?

• Are you managing inventory efficiently?

• Are you overstocking inventory?

• Are creditors being serviced on time?

• Can you cover short-term obligations with

current assets?

Liquidity Ratio

• Net working capital

• Current ratios

• Inventory turnover

• Days sales outstanding

• Days payables outstanding

• Interest cover

• Is the operation being managed optimally?

• Are assets generating the right returns and used

to capacity?

Asset Management Ratios

• Return on assets

• Return on equity

• Asset turnover

• What is the relationship between a company

debt and equity?

• Is there too much debt?

• What is the company’s debt coverage?

ratio

Leverage Ratios

• Debt to equity ratio

• Debt coverage

• Debt to total assets

A company should also create metrics to better manage and leverage customer relationships, customer

satisfaction, and competitive positioning.