Watching out for red flags (Part 2)

LAST week, I highlighted the need to have a fundamentally sound business formula if a company wants to sustain its growth momentum amidst a tough and challenging marketplace.

In my speech at a Singapore Vietnam Business Forum held at Radisson Blu in Cebu last Wednesday, I reiterated the three pillars that are absolutely critical elements in growing the business enterprise. These three elements are strategy, structure and staffing.

If you granulate strategy, it primarily covers your vision, mission, value proposition, differentiation and goals. If the focus is on structure, the areas that must be given attention are culture, operations, distribution, revenue stream, customer service, partnerships, sourcing and controls. And finally, for staffing, the key metric is simple–it will all boil down to the right and qualified professionals that will carry your vision and growth plan in the next five to 10 years.

My speech was meant to reinforce my earlier article after I received a deluge of emails from mostly 2nd and 3rd generation family members collectively pointing to the grievous habit of senior generation leaders in solely focusing on the short term and mostly transactional way of running the enterprise and ignoring many red flags that will naturally compromise the viability of the business.

That said, I will now complete the list of red flags to educate and challenge business owners that sales is just one of the major pillars for businesses to sustain growth.

It’s all about inventory

Keep a firm grasp of inventories to avoid burdensome financing costs on excess inventory and to maintain liquidity. In the end, it should always be about forecasting and a good balance between sales velocity and keeping the right amount of inventory. An imbalance will always have cash flow implications.

Watch your accounts payable. It will haunt you to no end.

Keeping current on your payables is essential to retaining good credit status. However, you have to set priorities. Study who must be paid first to keep things running, followed by primary suppliers and so on.

The idea is to design a debt structure, which includes your payables position, banking relationship, financing terms and the need to factor receivables, that supports growth and doesn’t constrict cash flow.

Your profit and loss (P&L) is everything

Purchasing, labor and manufacturing overhead, and operating expenses, when ignored, can become burning costs. It is important that you “spend smarter” by tightening up routine expenses, examining the costs and options of things that are usually taken for granted (representation, transportation, etc.).

It’s all about hiring the right personnel

No business can survive and prosper without competent people. Qualified people can power the drive toward greater productivity and profitability. Pay them well to retain them. Constantly hiring and training personnel because of a high turnover rate due to a poor working culture is an additional operational expense.

Most entrepreneurs are aware that hiring an unqualified employee can do more harm than good. If you feel investing on training and skills is an expensive proposition, try ignorance. As the saying goes, “Pay them peanuts, you’ll end up getting monkeys!”

In the end, having the right HR plan and cultivating the right culture in the workplace will be reciprocated by a productive and educated workforce. Believe me, investing in people is worth every centavo.

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