Avoid behaving badly and going bust

13 Nov 2017

Businesses behaving badly and going bust

I recently watched a TV series which featured three friends who held equal shares in a hotel business they ventured into. One was in charge of the hotel, another looked after the pub and bar, and the third looked after the kitchen as a chef.

Over a 9 month period (from owning the business):

  • There was no particular individual in charge to drive and manage the business – according to them, it was managed by all three!
  • Every night featured a drunken party at the bar such that the hotel's guests couldn’t get a good night sleep – the parties were more important!
  • Hotel guests arriving late had to weave through a bar filled with partiers just to get information on how to check in – because the front desk was closed from 9pm!
  • The food in the fridge was mixed with raw and cooked meat, expired products and mould growing food.
  • Guests complained about the quality of the food and service.
  • One of the owners declared himself as employee of the month, even though they had a few other employees.
  • Always offered free pints and drinks to parties during the nightly parties.
  • Had no financial plan and a system to manage finance and cash flow.
  • This business was only ‘in the moment’ and had no plan for growth and the future and thus represents a typical example of a business behaving badly.

Here are some tips to ensure your business does not behave badly, stays ahead, generates profits and becomes cash positive:

  • Have a pilot: You or someone in the business need to be responsible for directing the business. This involves being responsible for strategy, decision making, delegation and overall management.
  • Become financially literate: This does not mean you have to be the accountant or finance director (great if you are)! You, however, need to be aware of what the numbers are saying and how you can use that to take proactive action in driving the business forward.
  • Understand your income: What is your most profitable product or service? Which market, sector, industry or customer drive increased sales revenue? It is recommended that you have financial information that gives you insightful analysis on margins and profitability mix.
  • Understand your costs: Having a good knowledge of your cost drivers would go a long way in helping you focus on cost savings and reductions to improve your bottom-line. A robust system of accounting would help categorise and segment your cost structure to better identify cost drivers and actions you can take to reign in on excessive costs.
  • Plan and forecast your cash flows: ‘Cash is king’ is a well-known catchphrase – it is, however, a very important factor to businesses not behaving badly! Making profit does not really translate into being cash positive and having money in the bank.
  • Making profit should ideally lead to being cash positive over time: Having a good knowledge of your income and expenses is a great way to begin the process of planning and forecasting your cash flow. A cash flow forecast will make you aware of when you have funds to spend and when you are most likely to have less cash. This can be great and useful information as you will be able to make spending decisions more effectively and efficiently.
  • Get support: Businesses today thrive much better when they are able to make commercial and viable decisions with concise, insight and informative management information. Value creation can be achieved with metrics that help you to focus and grow your business.

Transitioning and positioning your business for growth from being the CEO that wears all the hat to engaging field experts can be one of the best course of actions you can take to drive your business forward.

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