Methods of Managing Change In An Organization

Business Management Ratios For Small Businesses

Business Management Ratios For Small Businesses | Important Financial Ratios For Small Business

 

Welcome back to our part two (2) in this three-part article series on the Use of Financial Ratios For Small Businesses – today we will continue with part two (2) . You can go back to part one (1) here

Accounts Receivable Turnover Ratio:   Net Sales ÷ Receivables

This ratio measures the number of times Accounts Receivable turn over in one year.  The greater the turnover, the shorter the time period between sale and the collection of cash.  If a company’s receivables are turning slower than the rest of the industry, an examination of the company’s collection procedure and quality of receivables should be closely examined.

This ratio may also be misleading if the company’s cash sales represent a large percentage of total sales.  Keep in mind that this ratio does not recognize cash sales.

Inventory Turnover Ratio:  Cost of Goods Sold ÷ Average Inventory

This ratio measures the number of times inventory is turned over during the year.  High inventory turnover can indicate better liquidity or superior merchandising.  Conversely it can indicate a shortage of needed inventory for sales.

 

Key Financial Ratios For Small Business

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Low inventory turnover can indicate poor liquidity, possible overstocking, obsolescence, or in contrast to these negative interpretations a planned inventory buildup in the case of material shortages.

When the inventory figure is zero, the quotient will be undefined and represents the best possible ratio.

This ratio is considered a significant indicator of the efficiency of operations for many businesses.  This ratio is used to measure the speed with which inventory was being sold and replenished during the past year. As a general guideline, a high ratio suggests an efficient inventory system.

 Payables Turnover Ratio:   Cost of Sales ÷ Trade Payables

This ratio measures the number of times that trade payables turn over in one year. The higher the turnover, the shorter the time between purchases and payments.

If a company’s payables turn over more slowly than the industry, the company may be experiencing cash shortages, disputing invoices with suppliers, enjoying extended credit terms or deliberately expanding its trade credits.

 Working Capital Turnover Ratio:   Net Sales ÷ Net Working Capital

 Working capital (current assets minus current liabilities) is a measure of the margin of protection for creditors. It reflects the ability of the company to finance current operations.  Relating the level of sales generated by the operations of the company to the working capital supporting these operations, measures how efficiently working capital is employed. 

A low ratio may indicate an inefficient use of working capital while a very high ratio may signify overtrading and a vulnerable position for creditors.

 This relationship indicates whether a company is overtrading or conversely carrying more liquid assets than needed for its volume.

Each industry can vary substantially and it is necessary to compare a company with its peers to see if it is either overtrading on its available funds or being too conservative.  Companies with substantial sales gains often reach a level where their working capital becomes strained.

 Fixed Assets To Net Worth:    Net Fixed Assets ÷ Net Worth

Net Worth is defined as Retained Earnings plus Current Year to Date Earnings plus Capital Stock. This ratio measures the extent to which stockholder’s equity (capital) has been invested in facilities and equipment (fixed assets). 

A lower ratio shows   a proportionately smaller investment in fixed assets in relation to net worth, and a better “cushion” for creditors in case of liquidation.

           Key Financial Ratios For Small Business | Important Financial Ratios For Small Business

Organization

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Similarly, a high ratio would show the opposite situation. The presence of substantial leased fixed assets(not shown on the balance sheet) may deceptively lower this ratio.

The portion of net worth that consists of fixed assets will vary greatly from industry to industry, but generally a smaller proportion is desirable.

A high ratio is unfavorable because heavy investment in fixed assets indicates that either the concern has a low net working capital and is over trading or has utilized large funded debt to supplement working capital.

Also, the larger the fixed assets, the bigger the annual depreciation charge that must be deducted from the income statement.  Normally, fixed assets above 75 percent of net worth indicate possible over investment and should be examined with care.

Joint us in the conclusion of this three (3) part article series Performance Ratios For Small Businesses

You can go back to part one here – Use of Financial Ratios For Small Businesses.

 

 

 

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Financial Ratio Analysis For Small Business

Use of Financial Ratios For Small Businesses

Financial Ratios For Small Businesses | Financial Ratio Analysis For Small Business

Welcome to the first in our three (3) part article series on Use of Financial Ratios For Small Businesses. Without any further ado lets get started.

Financial ratios are often not clearly understood by the small business entrepreneur or not properly utilized to provide a financial profile of the company. Financial Ratios, properly used, reveal key strengths and weaknesses within the structure of the company that will enable or prohibit the achievement of long-term strategic goals.

There are no concrete “right” or “wrong” ratios for any business.  Each must be considered only as a basis for comparing your company’s situation to what is happening with other companies in the same business segment and your company’s historical data.

In the changing environment brought about by pressure to outsource some of the production it becomes even more important to use the ratios as indicators of financial trends and the company’s viability.

 

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Business Financial Profile

Small Business Financial Controls

 

Business Financial Profile

A financial profile is a comparison of the ratios calculated for a specific company with that of the industry averages for the particular industry to which the company belongs. The industry is identified by a SIC (Standard Industry Classification) number that are the closest to your company’s type of  services or/and products provided.

This financial profile provides a means of relating the financial strength and performance of the company to the industry as a whole.  It provides management with a frame of reference. Comparisons of the individual ratios of the company with industry averages highlight any underlying problems that the company may have. It focuses management’s attention on areas that require further examination and analysis.

Financial ratios are derived from the company’s financial statements – the Income Statement and the Balance Sheet. The key company ratios that offer critical insight for small business are listed and defined as follows:

Liquidity Ratios

Liquidity is a measure of the quality and adequacy of current assets to meet current obligations as they become due.

The Current Ratio: Total Current Assets ÷ Total Current Liabilities

This ratio measures the ability of a firm to pay obligations that will come due within one year or during the operating cycle, whichever is longer, using its current assets.  Current assets normally include cash, marketable securities, accounts receivable, and inventories.

Current liabilities consist of accounts payable, short-term notes payable, current maturity of long-term debt, accrued income taxes, and other accrued expenses (principally wages).

 

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Financial Ratios For Small Businesses

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It shows this as the number of times a firm’s current assets can pay off its current liabilities.  This ratio considers the shrinkage of current assets.  A generally accepted principle is that a 2:1 ratio implies a healthy relationship.  This means that you should have twice the Current Assets than you have Current liabilities.  Low or declining ratios here may indicate an insufficient margin of safety for meeting obligations.

On the other hand, a high ratio may indicate a presence of a lot of unproductive cash or inventory or outstanding Accounts Receivable. Although a ratio of 2 to 1 has often been singled out as desirable, this rule of thumb is not necessarily valid.

Ratios will vary in different industries. In fact, some companies may operate quite satisfactorily with ratios of  only slightly greater than 1 to 1.

Generally, the higher the current ratio, the greater the “cushion” between current obligations and the firm’s ability to pay them. The stronger (higher) ratio reflects a numerical superiority of current assets over current liabilities.

However, the composition and quality of current assets is a critical factor in the analysis of the individual firm’s liquidity. This ratio is presumed to indicate the ability of the concern to meet its current obligations.

 

Financial Ratios For Small Businesses | Financial Ratios Used By Lenders To Evaluate A Company

Financial Ratio Analysis For Small Business

Methods of Managing Change In An Organization

 

Quick Ratio: Cash & Equivalents + Trade Receivables ÷ Total Current Liabilities This ratio is also known as the Acid Test ratio.  It is a refinement of the current ratio and only considers the firm’s most liquid assets.

Typically this includes cash, Other Investments, and Accounts Receivable.  It takes inventory and net investment in leases out of the picture.

The ratio expresses the degree a company’s current liabilities are covered by the most liquid current assets.  Generally, any value of less than 1 to 1 implies a reciprocal dependence on other current assets to liquidate long-term debt.

This is a more conservative measure of the ability to cover current obligations because inventories, which take some time to convert to cash, are not included.

Join us next in part two (2) of this three (3) part article series as we discuss more on Business Management Ratios For Small Businesses

 

 

Business Management Skills Blog | Best Financial Ratios For Small Business

Tips on Managing People

Tips On Managing People

Tips on Managing People | Managing People Effectively

Welcome back to our part two (2) in this two-part article series on People Management for Small Business – today we will conclude with more Tips On Managing People. You can go back to part one here

Managing People Effectively

Weed out MisfitsIt is inevitable that some misfits are certain to creep into any organization, no matter how carefully people are screened or evaluated. The manager must be alert to move quickly and decisively to separate them. Not acting quickly to rectify such situations detracts from a manager’s credibility.

People in an organization invariably know who the misfits are and will quickly draw negative conclusions about the manager’s own capability if he permits them to remain.

 

Leadership Tips On Managing People | Managing People Effectively

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Methods of Managing Change In An Organization

 

Cultivate individual ambition and drive.

No individual should be criticized simply because he is “too ambitious,” “too aggressive,” “too impatient,” or “too demanding” as long as he is a good thinker and fair and straightforward in his dealings and actions with others.

These phrases frequently are used in a critical vein in personnel evaluations, but they actually represent the kind of qualities an organization should develop because such people can and will make things happen for the better.

It is those people who are too easy going, too willing to compromise principles to avoid conflict, more interested in being liked than in getting things done who should come under fire.

They create an unstable working environment that makes it impossible to develop a strong team or achieve outstanding results.

Focus objectively on personal accomplishments, not personal differences. A manager must understand that race; age, gender, skin color have nothing whatsoever to do with evaluating an individual’s effectiveness in a company.

Focus on and evaluate the things that really count:

Who faces problems squarely? Who has the fortitude to tell it like it is?

Who is an effective, contributing team member?

Who has and can articulate good ideas?

Who produces results? Who meets his or her commitments?

 

Leadership Tips On Managing People | Managing People Effectively

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The Five Key Factors In Communications

 

Let people know their status and future prospects. A manager should ensure that people in the organization know exactly where they stand and what their career outlook is at all times. This doesn’t mean that anyone should expect to have a special career path mapped out or to be promised a future promotion.

But it does mean that each person is entitled to know whether he/she is performing well or poorly in his current assignment and whether he/she is regarded as having future growth potential.

Provide training, but stress self-development. There will be times when a company must reach outside to find the best available leadership to meet its management needs and standards. However, promotion from within should be the company’s overall organizational plan and goal.

Toward that end, a company should support projects to prepare its people for increased responsibilities.

But, in the final analysis, all of us ultimately shape and control our individual destinies. A company can point the way and assist with company-sponsored educational and training programs, but self-development is the key to success — and each employee must shoulder that management responsibility on his own.

Create and maintain an attractive, healthy company environment. This ground rule sums up all the previous guidelines. It underscores the essential responsibility of a manager to provide people in the organization with a situation and an opportunity to work effectively in a common effort, develop their capabilities, fulfill their professional aspirations, and achieve appropriate recognition and rewards.

A manager must place major emphasis on creating this kind of environment. This doesn’t mean he should seek to make everyone happy or to make tasks easier. But, it does mean that he should develop a work environment that has these characteristics:

There is absolute honesty and integrity in what everyone says and does. And, everyone feels perfectly free to say what he or she really thinks.

There is open communication up and down and across the organization. Everyone recognizes both the right and the responsibility to be open and constructively critical of things that are wrong or that could be improved.

Supervisors are willing to really listen to the other person’s side and point of view — and are willing to admit “I’m wrong” if facts and logic show that this is the case.

 

Tips on Managing People | Managing People Effectively

Tips On Managing People

Business Restructuring Consultants

 

There is a genuine interest in getting problems out in the open.

Everyone works hard and effectively as a team. There is an air of excitement in the organization that comes with the realization that everyone is operating on a winning team.

 

 

Business Management Skills Blog | Tips on Restructuring a Business

People Management for Small Business

People Management for Small Business

Small Business Management System | People Management for Small Business

 

People Management for Small Business

Welcome to the first in our two part(2) article series on People Management for Small Business.

As a company organizes and staffs to achieve success, it typically operates within a framework of well-defined management principles. The difficulty lies not in gaining acceptance of those basic management concepts, but in implementing them when dealing with specific individuals in actual situations.

The guidelines that follow will help you face and deal with tough people decisions.

Recognize that it is people, not structural changes alone, who make an organization work or fail.

Organizational change has to be driven by talented and committed people.  Good talented people who are dedicated can make almost any organizational structure succeed. Conversely,lackluster people who are poor performers will be ineffective under any organizational concept.

Of course, organizational changes often are necessary to better utilize talents, achieve better planning and control, reduce costs, etc.  But, the manager must ensure that he doesn’t fall into the trap of tinkering with the organization as a means of escaping or putting off fundamental people related problems that are difficult or uncomfortable to deal with.

 

People Management for Small Business | Application Of Information Technology In Business

People Management for Small Business

Business Restructuring and Reorganization

 

Provide for a successor.

Every manager should have a backup person who is potentially qualified for his job.  If there is no one who has this potential then you must give top priority to bringing someone in who does.

Providing for a successor does not automatically mean adding to staff.  Rather, it means that one to two people within the organization who do not have appropriate management qualifications or potential should be replaced by someone who can meet those requirements.

This should be done when attrition requires hiring replacements or when marginal performers are being replaced.

Deal with tenure problems fairly but candidly.

Some individuals who have long and distinguished records of service in the company reach a point where their job responsibilities move beyond their energy level or capabilities.  This is a natural development and should be expected.

The manager and the organization both have an obligation to those people who have served it loyally.
They should be compensated fairly and they should be given assignments where they have an opportunity to make a continuing contribution.

But, if they can no longer pull their own weight, they have to be removed from the mainstream.

It is not fair to the balance of the organization to leave them there.  And, it is certainly not fair to them.

Communicate expectations  — measure performance and act on results.

A successful manager ensures that each person in the organization knows what is expected of him/her, how his/her assignment fits into the whole operation and how his/her performance will be measured.

Each individual should have a set of specified goals that he/she is expected to accomplish within a certain time frame, so that there will be no misunderstanding about what he/she is supposed to do.

Actual accomplishment against those expected results should serve as the basic measure of performance. At the same time, the company’s system of rewards  must reinforce this concept.

Rewards should be for achieving results, not for effort. In a competitive free enterprise environment, trying hard is not enough.

 

Application Of Information Technology In Business | People Management for Small Business

People Management for Small Business

Financial Ratio Analysis For Small Business

 

Don’t put up with marginal performers.

The most frequent and insidious personal mistake managers are apt to make is to live too long with marginal or poor performers.  Most managers kid themselves into thinking that by allowing these individuals to continue, they are being fair and that somehow time will correct the situation.

Nothing could be farther from the truth — basic personality faults or skill deficiencies simply do not get corrected with time. It is totally unfair and a reflection of weak management to reach an agonizing conclusion that someone can’t do the job after he has been on it for several years.

 

Criticize only in private.

No person should be criticized in the presence of his subordinates.  Any criticism should be saved for a private discussion so that the individual responsible can later handle the problem or correct matters with his subordinates on his own.

Join us in part two (2) as we discuss more tips on managing people.

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Business Management Skills Blog | Creating A Climate For Change Within The Organization

Business Restructuring and Reorganization

Tips on Restructuring a Business

Tips on Restructuring a Business | Business Restructing | Business Restructuring and Reorganization

Whаt is Business Restructuring?
A numbеr оf fасtоrѕ, ѕuсh as rеѕроnding to есоnоmiс pressures, сhаngеѕ in thе mаrkеtрlасе, a business decision to sell or соntrасt оut, or рrоduсt аnd ѕеrviсе сhаngеѕ, саn еmеrgе which impact thе financial аnd /оr ореrаtiоnаl реrfоrmаnсе of a соmраnу.

If mitigating асtiоn is not taken quiсklу the company riѕkѕ dеvеlорing ѕеriоuѕ cash flоw problems which саn threaten itѕ vеrу еxiѕtеnсе. During thеѕе сhаllеnging times, it саn bе difficult fоr dirесtоrѕ to tаkе rаtiоnаl, оbjесtivе dесiѕiоnѕ as the fосuѕ tеndѕ tо bе оn the reactive mаnаgеmеnt of dау-tо-dау iѕѕuеѕ.

Business Restructuring and Reorganization

Buѕinеѕѕ rеѕtruсturing саn cover a multitude оf аrеаѕ, but it tурiсаllу invоlvеѕ refocusing thе financial аnd / оr ореrаtiоnаl ѕtrаtеgу in оrdеr tо imрrоvе liquidity and performance. When a соmраnу iѕ having trоublе making рауmеntѕ оn itѕ debt, it will оftеn consolidate аnd аdjuѕt thе terms оf the debt in a debt rеѕtruсturing whiсh inсrеаѕеѕ itѕ аbilitу to rерау more mаnаgеаblе ѕumѕ.

An operational restructure tеndѕ to streamline соѕtѕ, ѕuсh аѕ рауrоll, оr reduce its size thrоugh thе ѕаlе оf аѕѕеtѕ. Thiѕ iѕ оftеn ѕееn аѕ necessary whеn thе current ѕituаtiоn at a соmраnу is оnе thаt mау lеаd to itѕ collapse. Decisive аnd timely асtiоn, drivеn bу аn еxреriеnсеd advisor, саn, therefore, be thе imроrtаnt firѕt ѕtер in successfully rеѕtruсturing the buѕinеѕѕ.

 

                     How to Undertake a Financial Restructuring  | Business Restructuring and Reorganization

Tips of Managing People

 

Whеn tо соnѕidеr Buѕinеѕѕ Restructuring

Undеrtаking a ѕtrаtеgiс rеviеw оf реrfоrmаnсе mаkеѕ good buѕinеѕѕ ѕеnѕе аt аnу timе but it iѕ еѕресiаllу uѕеful in ѕituаtiоnѕ whеrе a buѕinеѕѕ, fоr whаtеvеr rеаѕоn, hаѕ nоt асhiеvеd, or iѕ not likеlу to асhiеvе, itѕ objectives. If thеrе iѕ аn immediate оr роtеntiаl risk оf nоt being аblе tо рау сrеditоrѕ whеn dеbtѕ fаll duе then urgеnt аdviсе ѕhоuld be ѕоught bеfоrе thingѕ еѕсаlаtе

Whаt Iѕ Nееdеd for a Business Restructuring Plan?
Buѕinеѕѕ оwnеrѕ ѕhоuld реriоdiсаllу аѕѕеѕѕ hоw tо imрrоvе financial rеѕultѕ. One соurѕе оf асtiоn often соnѕidеrеd is whеthеr a business ѕhоuld be restructured in оrdеr to achieve rеquirеd реrfоrmаnсе levels.

Bеfоrе рurѕuing thiѕ ѕtrаtеgу, a business restructuring plan ѕhоuld bе thoroughly еvаluаtеd. Imроrtаnt diѕсuѕѕiоn роintѕ will nоrmаllу inсludе why restructuring might bе nееdеd, whаt iѕ required аnd hоw tо imрlеmеnt the resulting strategies.

Rеаѕоnѕ fоr Business Rеѕtruсturing

One оf thе mоѕt соmmоn rеаѕоnѕ tо restructure a company is the dеѕirе tо prepare it fоr a ѕаlе, merger оr еmрlоуее buуоut. Anоthеr common mоtivаtiоn involves rеоrgаnizing thе business for transfer tо family mеmbеrѕ. With a сhаllеnging есоnоmу, a third rеаѕоn fоr роѕѕiblе rеѕtruсturing is the difficulty of kеерing ѕаlеѕ rеѕultѕ аbоvе a finаnсiаl brеаk-еvеn роint.

A аdditiоnаl key reason tо rеviеw a buѕinеѕѕ rеоrgаnizаtiоn iѕ in preparation fоr mаjоr growth involving new рrоduсtѕ оr services. In some other саѕеѕ, legal and financial rеаѕоnѕ might diсtаtе a rеѕtruсturing alternative.

Plаnning Ahead

Thе business rеѕtruсturing process tурiсаllу involves:

  • Diаgnоѕiѕ,
  • Plаnning аnd
  • Imрlеmеntаtiоn.

Thе diagnosis рhаѕе iѕ ѕimilаr tо a fеаѕibilitу study аnd inсludеѕ аѕѕеѕѕing a variety оf роѕѕiblе buѕinеѕѕ scenarios. Thе planning stage rеquirеѕ the fоrmulаtiоn оf dеtаilеd ореrаtiоnаl and ѕtrаtеgiс рlаnѕ. Imрlеmеntаtiоn will be сlоѕеlу tiеd to thе business restructuring рlаn thаt wаѕ аррrоvеd by buѕinеѕѕ оwnеrѕ аnd аll other imроrtаnt stakeholders.

Anticipate thаt thе diagnosis and рlаnning parts оf the process will rеquirе a minimum of ѕеvеrаl mоnthѕ аnd often mоrе than a year.

                            
How to Undertake a Financial Restructuring | Business Turnaround Services

Creating a Climate For Change Within The Organization

 

Cоmраnу Rеѕtruсturing Process

Three of the mоѕt imроrtаnt раrtѕ in any buѕinеѕѕ restructuring are thе participation of соrроrаtе ѕtаkеhоldеrѕ, аdhеrеnсе to аnу lеgаl rеѕtriсtiоnѕ аnd flexibility during imрlеmеntаtiоn.

Whilе there are no ѕресifiс lаwѕ or gоvеrnmеnt rеgulаtiоnѕ stipulating what needs tо bе included in a buѕinеѕѕ restructuring рlаn, it iѕ not unuѕuаl fоr lеgаl challenges tо оссur.

In раrtiсulаr corporate lеndеrѕ аnd any оthеr раrtiеѕ with a vested finаnсiаl intеrеѕt in the соmраnу likеlу will hаvе quеѕtiоnѕ аnd lеgаl concerns regarding their invоlvеmеnt in the rеѕtruсturing.

Imрlеmеnting a New Business Plаn

When a соrроrаtе rеѕtruсturing рlаn is developed аnd аррrоvеd, the rеѕulting рlаn еffесtivеlу ѕuреrѕеdеѕ thе соmраnу’ѕ original business рlаn. Thiѕ iѕ likеlу tо bе mоrе dеtаilеd аnd timе-ѕеnѕitivе than a traditional plan.

Onе kеу tо ѕuссеѕѕ iѕ hоw еffесtivе buѕinеѕѕ оwnеrѕ аnd mаnаgеrѕ аrе in adapting tо сhаngеѕ during thе imрlеmеntаtiоn phase.

Aѕ a business оwnеr contemplating еvеn thе mоѕt bаѕiс rеѕtruсturing plan, уоu should bе рrераrеd for thе challenges аhеаd.

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