Are your monthly profits a little lower than normal?  Is cash suddenly becoming a concern?  Are these things happening more often than not?  Just what's going on?  Is my business in trouble?

It is amazing how often we see intelligent business owners and top level management ignoring these signs and going about business as usual.  Having been in the corporate world for most of my career, I understand exactly how this happens.  We get busy with our daily responsibilities and we are sure we are doing all we can to make the business succeed.  But these warning signs cannot be ignored and require us to step back and properly assess the situation.  The purpose of this article is to remind you to take that step back and give you some hints on how to tackle the issue.

The first step is realizing there might be an issue.  Don't ignore the signs.

Next, your operation needs analysis.  Do you understand what is creating the problem?  Is it a short term or long term problem?  Several common areas of concern:

• Sales down.  This could be overall decrease in sales or a specific customer or segment of business.
• Expenses up.  Did we take on an initiative or new cost structure model without understanding the consequences, particularly to cash flow?  Is it expense creep or a new service contract.
• Production issues.  Are we having production issues that are driving up labor costs, rework or excess scrap?
• Material cost increases.  Is there a significant increase in a certain aspect of our production costs due to vendor issues or general shortages?  Many commodities such as steel, paper, etc. are subject to price volatility and you need to be aware of what is coming up.
• Slowing collections.  This could be overall or with specific customers.  If it is with a particular customer, you need to find out right away why.  You could have a big problem on your hands.

Of course there could be many other reasons for your difficulties, but the key is to identify what they are and how long the issues may affect you.

Once the problem is identified, you must begin finding solutions.  This article won't delve into this process, but you must ensure the right people are involved, you document your plan, track results and make adjustments as necessary.  Nperspective can certainly lend assistance in this area as our CFOs have been through this exercise many times.

In conjunction with finding solutions, you must begin understanding the financial and cash flow impact of your issue(s) and the impact your possible solutions may have going forward.  In previous articles, we have touted the benefits of financial and cash flow forecasting, and they are certainly very useful and necessary tools.  Your actions may be significantly impacted if you know how they will affect your financial results and cash flow situation in the near and long term.

Even if you determine that your problem is a short term issue, wouldn't it be helpful to know when and if this short term problem is going to create a cash flow burden or impact your borrowing covenants?  With this information you are able to take action ahead of time, not in panic mode at the last minute.  I assure you that your bank would like the heads up and is usually willing to work with you when you understand what your issue is and are able to provide some insight into when and how the problem will be resolved.

Ultimately you have to be willing to accept what your analysis and forecasts tell you.  You may have to temporarily suspend an initiative until other areas improve.  You may have to consider changing or closing down a particular segment of your business that is no longer viable.  Worst of all, you may have to make employee changes or reductions.  This last area is often an action which business owners are understandably most reluctant to take.  But the reality is, if your business has changed, your headcount structure may have to change with it.  It does no good to allow some to keep their jobs for the short term when that decision may costs many more jobs in the future.

You must acknowledge there are issue, analyze to determine what those issues are, forecast forward to understand the impact and then make decisions quickly.  Once you know what you need to do, every day without taking action is lost money and/or opportunity.

Nperspective CFOs have helped many clients identify their problem issues, find solutions and map out a go-forward plan to regain prosperity.  With our varied experiences, we can both quantify the issues and find the strategic and tactical solutions necessary.  Contact Russell Slappey at 407.448.1781 or rslappey@npcfo.com for a complimentary consultation.

*He is a licensed Certified Public Accountant (CPA) in the State of Ohio.