Cut Cost Without Cutting The Staff Force

Maintaining Full Staff Force While Cutting Costs: A Strategic Approach

  • Understanding the need to cut costs without reducing staff force
  • Strategies for improving staff skill set and productivity economically
  • Innovative ways to remunerate staff without increasing financial strain
  • Fostering staff loyalty as a cost-effective measure during financial crises
  • Balancing a lean staff force with maintaining efficiency in operations

A. Understanding the need to cut costs without reducing the staff force.

normally a lot of businesses during the downturn, face a lot of pressures, the first thing they will do is to cut cost in order to survive the down turn.

Most businesses know surviving the downturn need to cut cost, however, do they do the right thing in reducing cost?

A lot of time, businesses just cut the head count, as the cost cutting is very obvious and immediate.

say you have 100 staffs, and if you reduce the staff force by one third, that mean you lay off about 35 staffs, you save at least 100,000 per month in term of salary.

However, the issue most businesses seem to overlook is the cost involved when situation get better and you need to get more staffs in.

The opportunity cost is the one every one seem to overlook.

B. Strategies for improving staff skill set and productivity economically

instead of laying off workers during the downturn, businesses should try to improve the staff skill set and productivity economically.

during the down turn, since business will be slow, this is the time to send the workers to improve their skill set.

it is also the time to see how to increase the productivity of the workers.

by sending them to train, and help them improve, the workers will appreciate the businesses effort, and will be grateful that the business take care of their welfare in time of challenging business environment.

if the workers are appreciate and grateful, they will learn more and help the company to tie over the down turn.

C. Innovative ways to remunerate staff without increasing financial strain

If a business is innovative, it will find a way to remunerate the staff without increasing the financial strain of the company.

one of the best way to reward the staffs is to make them feel wanted and appreciated.

Perhaps the company can consider giving some shares to the workers and this way, they will feel since now they also own some shares of the company, they will put in more effort and productive output.

AS no one wants to lose whatever he owns.

D. Fostering staff loyalty as a cost-effective measure during financial crises.

How to foster staff loyalty as a cost effect measure during financial crisis?

a lot of businesses may think it is not worth any effort to do so.

Loyalty of staff nowadays does not seem to be in the mind of the employees.

if you look at the trend nowadays, a staff staying at a company, the most is 2 years, seldom you see a worker stays in one company for more than 5 years.

Likewise, employer is not willing to invest so much in employees welfare as employer thinks it is not worth the effort at all.

Employers seem to have the impression that if they invest in employees, they are only helping others to train the staffs.

so how do we foster staff loyalty?

As mentioned above in C, one of the way is to have employee share option scheme,

Respect and trust work both way, if employer does not think employee is worth investing, employee will think no worth to go all out to do his job after all his effort is not appreciated.

Especially during financial crisis, if the employees feel that there is no security in their jobs, they will not show their loyalty at all, as the threat of anytime they will lose their job will put them under undue pressure.

If every day you have this threat hanging over your head, will you be able to be loyal to the company you are working in?

E. Balancing a lean staff force with maintaining efficiency in operations

A lean work force with efficiency in operation is the challenge companies are facing nowadays.

Unless the bosses are willing to work the ground and find out what actually happening in their operation, they will not be able to understand the workers on the ground are facing.

Some management only know in theory lean work force equal low cost in operation.

However do they know lean work force may also be stressful for the workers at the ground level who may need to work overtimes to finish their job.

Are you able to balance this lean work force and efficiency in operation?

Do you really understand the processes and what kind of work force is required in order to achieve the target set?

Most management will take the easier way out by cutting work force, they do not care how the left behind work force complete the job. all they are interested in the result.

Without knowing the process, only emphasis on results, in the short term, it may look good, in the long run, the bad effect may surface.

One of the bad effect will be the staff will be leaving, when he reaches his breaking since he has increase work load and not properly compensated for his output.

In the short term, he may just take it and work on, after he reaches his breaking point, he will realize it is not worth putting the extra if his health and family life is affected.

After all, money is not ever thing, the most important is you may earn good money, the issue is do you have the luxury to enjoy the money you earn.

You will find that al the money you earn is to buy the health you are craving for.

In conclusion, is there any business out there which really care about the welfare of the staffs or they are just chasing their bottom line and please the shareholders only?

Environment, Social and Governance

Environment, Social and Governance, the three words now in most of the Board of directors mind.

Whether they know what these three words entail and cover and what need to be done is another matter.

So What is Environment, Social and Governance or commonly known as ESG?

The whole business world is talking about ESG and every company jumps onto the bandwagon.

Whether they really care or not is another matter, as long as the public see they produce long reports at the end of the year in their annual report especially those public listed companies, that mean compliance with the listing requirement.

In Singapore case, that means they comply with SGX listing requirement in terms of reporting.

Does the authority really check whether the companies comply with the requirement?

Or is it another publicity stunt done for the sake of showing compliance.

Businessmen will tell you ESG will increase their cost of operation, therefore, to comply with it, they need additional fund to do so.

Now on Environment.

Nowadays every one cares about the earth and trying to make sure climate change impact is at the minimum.

The big question is – is every one serious about this issue? environment?

Nowadays public listed companies are required to produce in its annual report on sustainability and diversity disclosure in the annual report,

So, does it help in improving the climate changes and save the EARTH?

For those who like to print the annual reports in hard copy, that mean more pages on the annual reports.

More pages in the annual report mean more papers being used to produce the annual report.

With the increase in pages in the annual report, the paper manufacturer needs to produce more papers, then they have to cut more trees in order to produce more papers.

So much for sustainability of environment.

The next question is whether the board members know what they are supposed to do on ESG?

It will be interesting to know as we can notice most of the independent directors on boards are not that equipped in the subject matter.

Every good learning issue start from home.

If we want to do good, we have to start somewhere.

Therefore, to really deal with ESG, every one needs to put in his share of the work.

People nowadays have the habit and mentality of this is no my problem, it is the responsibility of the authorities and the government of the day to take care of the environment issue, and in the broader sense, ESG.

Carbon emission is one issue which affect the climate.

So can the directors go to meeting without taking a motor vehicle?

walk up the stair instead of taking the lift, since lift use power to get it moving.

And the power is from power station which is using coal, fuel, diesel to generate, and the emission of carbon is an issue.

Now on the Social issue.

Most of the time, if you ask a company to shoulder social responsibility, they will just tell you the bottom line is more important.

The motto of we must achieve a positive bottom line at all cost is more important than anything else.

So now companies need to take care of the Social factor in the ESG.

What do the companies need to do in term of Social factor in ESG?

the Social factor is about how the company manage its relationship with its employees as well as the community in which it is operating.

The relationship between the employer and employees are evolving, especially in the last few years at the height of the COVID 19 pandemic.

How a company treats its employees, inspire the employees, up skill and engage the employees go a long way to decide whether the employers are able to retain the employees.

Nowadays employees will look at how the employers take care of the staffs to decide whether it is worth to continue working in that environment.

People are more aware of the surrounding and working environment especially after going through the pandemic.

Employees now more likely choose to work with an employer who has social responsibility and showing more humane touch.

Those whose main objective is to make as much as possible at the exploitation of the staffs will find difficulty in keeping good employees.

Therefore, to drive ESG forward, human capital is the main contributing factor, and driving force to determine whether your effort in achieving ESG target is reachable or not.

now let talk about governance.

Most people have an impression that governance is just making sure every thing is done according to the rules and regulations.

Actually governance entail larger area than this.

Having a strong governance structure allow a company to ensure its business ethics and transparency are more visible and can reinforce trust in its leadership.

If a company is able to put in place a good governance policies, this will make the Board executing its fiduciary responsibility easier and at the same time, this can also help to manage the cost of operation.

Most people do not realize a good governance can help to reduce cost of operation.

When facing hard time, most businessmen like to take the easy way by cutting the staff force, instead of finding ways to reduce cost other than the human cost.

Cutting human capital must be the last resort for a company facing hard time.

Unfortunately, cutting human capital is the first step most businesses do when facing hard time.

By doing so, they seem to have forgotten the ESG factors.

This is what I said earlier, a lot of ESG measures are just for show, merely to satisfy the government requirement, how it is implemented, does not matter at all.

After all, is there any penalties for not compliance with ESG?

How importance is human capital for an organization?

Businesses need to look at the followings if they really care about human capital:

  1. staff turnover.
  2. Staff development.
  3. Occupational health and safety.
  4. Gender diversity
  5. age based diversity
  6. training
  7. staff welfare and benefit.

If an organization fails to give the staffs a sense of belonging, it will not be able to hold on the staffs, especially those good staffs.

Sadly most bosses do not seem to understand the importance of human capital,

human capital as intangible assets have value shown in the financial report, if the bosses can understand the importance of it, then the ESG will be implemented properly and effectively.

In conclusion, ESG is here to stay and companies need to pay more attention to it.

What Now With The Collapse Of Crypto ?

With the recent problem of liquidity in cryptocurrency, quite a lot of people have their live savings wiped out.

So are we seeing the end of the crash?

Or we have not seen the end of the collapse?

For those who are heavily in cryptocurrency, there are lessons we can learn.

If you read the financial news in the last few weeks or days, all we encountered were shortage of liquidity in the crypto exchange.

One of the biggest exchange based in Singapore had to go into liquidation, after the Monetary Authority of Singapore reprimanded them for giving false information last month.

As the result of which, that crypto hedge fund plunges into liquidation and we are yet to see the financial impact.

For the l;last few weeks, the global digital assets’ sector is facing strong head wind after breakneck speed of growth.

Due to the breakneck speed of growth, a lot of investors decided to jump into the bandwagon and ride on the wave.

During the last few years, the growth of the global digital assets’ sector was amazing, a lot of cryptocurrencies exchanges platform were up and running.

However, no one seemed to care there was a serious lack of regulation to monitor and regulate the transactions in cryptocurrencies transactions.

How do we know which exchange platforms can be trusted?

There are so many cryptocurrencies exchange platforms nowadays, and there are also so many types of cryptocurrencies on the market at the money.

There are too many until one can not decide which one is the one we can rely on.

Are they regulated and by whom?

though governments all over the world tried their best to regulate cryptocurrencies, the problem is there are too many exchange platforms pop up everywhere and each claimed its own legitimacy.

Without knowing the full details of the one who is running the exchange platform, and just base on friends’ recommendation just because he or she has been using the platform, then the cryptocurrencies hype grow.

We will only know there is a problem when someone who tries to cash in and liquidate his position find out he is not able to do so, or the money he tries to cash out does not seem to come into his bank account promptly.

Then when he tries to call, then only realize you can only do so by contact the exchange online, the reality sinks in when he realizes that he is dealing with machine or robot.

Evolvement of cryptocurrencies.

Cryptocurrencies were supposed to be the alternative for money currency and note.

Instead of using monetary note to purchase goods and for consideration,

Cryptocurrencies especially Bitcoin, when it first started, it was supposed to replace the normal money note as the consideration of exchange of goods or services.

However, somehow it seems it became an investment instrument instead of the alternative of money notes.

Bitcoin has fallen from the high of US$67,000 to its current level of US$ 20,000.

The collapse of cryptocurrencies caught investors by surprise, and people are wondering whether we have seen the bottom of it.

is it the same as the crash of the DOTCOM case in the 2000?

The dotcom crash was due to the rapid rise of the US technology stocks fueled by the investments in internet based companies in the late 1990s.

The internet based companies hype made opportunists investors jumped on the bandwagon and rode to richness, so they thought.

Then the reality sunk in and the bubbles burst, especially when the element of speculation came into play.

So it seems we are seeing the same thing for cryptocurrencies hype, every one is rushing into this sector just like in the late 1990s.

At the beginning, we only had Bitcoin, then when people saw how fast Bitcoin value rose, investors rush in and companies being formed and new cryptocurrencies being issued.

Now there are so many times of cryptocurrencies, resulting in so many choices for investors.

It seems that history is repeating itself, with people rushing to form new cryptocurrencies and so on, just like the DOTCOM case when every one rushed to form new start up and so on.

During the DOTCOM crash, we had a lot of venture capitals funding the new startups, the same thing is happening in this cryptocurrencies case.

With capital markets throwing money in this sector, the game is very much different and every one is rushing to grow big and trying to capture the market.

It resulted in we are not able to identify which is speculative and which is genuine investment.

to make the matters worse, scammers also dip their hands into this and make some killings for their own purposes.

So, do we still invest in cryptocurrencies?

Just like the DOTCOM incident, after raining, sun shine.

Those who have the lasting power or having some extra in the reserve, can wait for the storm to blow over and start investing again in this sector.

Hopefully by then a proper regulatory body is in place to make sure proper accountability and transparency in this sector.

Perhaps, something along the line of stock exchanges like the DOW JONES or other exchanges, where you want to have your counter listed, you must go through certain scrutiny and meeting some strict criteria, then only the cryptocurrency is allowed on the exchange.

Then perhaps we need to have a proper exchanges instead of what we have where anyone who has some extra can form an exchange and allow trading on its platform.

The most thing to bear in mind is to eliminate the speculative investment in this sector and also filter out the scammers.

Anyone who wish to share his experience in this sector, please feel free to put in your experience in the comments section below.

Post COVID-19 Challenges

COVID – 19 and its impact
For more than two years, businesses all over the world faced the impact of COVID-19 pandemic, and the chaos it brought upon all of us.
IN the last two years or so, every way we saw the business needed to shut its door, as government gave the order that to do so.
This was an effort to contain the spread of the virus.

Every one was encouraged to stay at home.

The main objective was to stop the transmission of the virus in crowded places.
Due to this measure, a lot of businesses need to stop operation.

A lot of workers were lay off, some lost their jobs due to cash flow issue.

While others lost their jobs because the owners were not able to sustain the business operation.

The reason being the operation has zero income.

Government effort to ensure zero cases of COVID-19, resulted in a lot of businesses having zero income. so is this trade off a good measure?

Luckily most governments decide

  1. to ramp up the vaccination processes,
  2. come to their sense to live with the virus, and
  3. slowly opening up the economy again.

Are you ready to face the challenges of the re-opening of economy?

Some businesses, while during the isolation and tough measure of government in containing the spread of the virus, were taking measure in preparation of the re-opening of the economy.

  • the smart one would have reviewed, and made changes in their business operation.
  • Some start the automation of some of their processes.
  • Others decide to divert to some other more sustainable businesses,
  • more in tune with the demand and requirement of the new normal.

What are the  consequences of business not in operation for more than two years?

  1. Lose of good workers.

Due to the slow down in business, companies in managing cash flow, most of them will just lay off their workers, so with skeleton work force, now with the opening up of the business, new workers need to be recruited.

One good example I noticed in Singapore was the fast food chain – McDonald.

They seem to be going round to try to recruit staffs in anticipation of business on the upward turn, now that the government has decided to relax the rules.

  1. Cost in training the new recruit.

I spoke to one of the McDonald manageress, she said the new staff needed training and obtained the necessary food health handling certification before he or she can start the work.

That mean cost is involved.

  1. Take time to recruit new staffs

If a business only starts its recruitment now following the government announcement of the opening of economy and live with the virus, by the time you manage to get the new staff on board, it will be another month gone.

Then the new staff needs to get acquainted to the new work environment and the way how the new company work.

  1. Machinery need to be maintained.

During the two years shut down, some of the machinery might not be in working condition.

And now need to restart,

  • the company need to carry out maintenance, and
  • services to ensure the machineries are in tip top condition.
  1. Looking for new office space.

Some companies might have given up the extra work space during the two years closure.

Now with the re-opening, they have to look for new work space, hence need o incur extra cost

Did you do some preparatory work during the two years scaled down operation?

Some managements have foresight, while waiting for the economy to open up again, they have already gotten their plan in place.

So once the economy opens up, they can hit the ground running, and getting business in as others are just about to do the necessary adjustments to face the new normal.

One good example is Changi Airport.

Once the government announced the opening of the boarder, they just hit the ground and run.

We can see from the data, in the first quarter of the year 2022, the numbers of human traffic and cargo passing through Changi Airport.

The news reported that Changi Airport had the highest in both categories among all the airports in the region, or even in Asia, beating Hong Kong.

Businesses good at adapting and innovating, will have not problem in operating in the new normal.

During the two years, we see what are the businesses which can survive any crisis or emergency shutdown.

If the business operators can make the necessary adjustment, and implement the changes, there is no reason the business can not grow and improve.

Conclusion

Good management will always innovate, adapt and make necessary adjustment to face the challenges.

If you need help from us, you can click HERE

With the new normal, challenges ahead

 

How To Manage Cashflow Effectively Part III

We have covered the importance of cashflow and the differences between revenue and cashflow.

Also we noted what we needed to do in preparing a cashflow forecast.

Now we want to cover the most important part on managing cashflow effectively.

In managing cashflow, we want to make sure we have surplus cash available all the times.

Ways of ensuring effective cashflow management.

  1. Monitor the cashflow forecast closely.
  2. Ensuring billings are done promptly.
  3. Fully utilize the credit term given by the suppliers.
  4. Take advantage of the government incentive schemes.
  5. Keep minimum inventory.
  6. Implement effective debt recovery and collection.
  7. Review expenses regularly.
  8. Maintain a good financing line of credits.
  9. Cash in on the discounts offered by suppliers.
  10. Demand for deposit for big sales contract.

 

  1. Monitor the cashflow forecast closely.

When we have the cashflow forecast, we usually notice the following scenarios:

  • We forecast a positive cashflow.
  • control of payments over a period of time.

So, in reviewing the cashflow, be it a weekly cashflow or a monthly cashflow, we will compare the actual and the forecast.

Since we always forecast a positive cashflow, we will not have to worry if the following work out:

a. the actual inflow of weekly cash in more than that forecasted. (assuming we are doing weekly cashflow).

b. the actual outflow of weekly cash is less than that forecasted.

if the above two scenarios play out, we are very sure that we will have cashflow surplus.

Reason being since we already forecasted a positive cashflow in which the cash inflow is more than the outflow of cash, therefore if the actual inflow is more than forecasted, and the actual outflow is less than forecast, we will have super positive cashflow.

On the contrary, if the actual inflow is less than forecasted and the actual outflow is more than forecast, then we need to review and find out the reasons.

Hence, by monitoring the cashflow closely ,we are able to take remedial action promptly, and rectify any weaknesses in operation immediately.

2. Ensuring billings are done promptly.

No billing means no payment by buyers, and no payments by buyers, we will run into cashflow issue sooner or later.

To ensure the inflow is not disrupted, we have to ensure our billings for work and services done are sent out immediately the moment work or service is done.

3.Fully utilize the credit term given by the suppliers.

a good business will take full advantages the credit terms given by the suppliers.

This is basic good cashflow management,

The main idea is – don’t pay the suppliers promptly and make sure debtors pay you quickly, that way you will not have any cashflow problem.

Sadly a lot of times, we see the opposite happen.

Bosses in their efforts to get in good term with suppliers, will instruct to pay the suppliers promptly, usually even before the end of the credit period.

And some bosses did not even bother to chase the customers to pay up fast, worry by doing so, will offend the customers, and this makes the finance staffs’ job more difficult.

4. Take advantages of government incentive scheme.

A good management will always take advantages of the government incentive schemes available.

Government such as Singapore government always has some good incentive schemes to support the businesses, especially the small medium enterprises.

So, to have a more effective cashflow, it is quite useful to take advantages of the schemes.

5.  Keep minimum inventory.

This may be arguable for some people, for me I am not one who favor keep a lot of stocks.

Having less stock mean the holding cost will be lower, and less space required to keep all the stock items.

This in a way , will not hold up the cashflow.

However there may be a different school of thought especially after the post COVID-19 situation, that depend on what industry you are in.

For manufacturing outfit, keeping raw materials at certain level may be a good idea but excessive inventory? I doubt that is the way to manage the cashflow.

 

6. Implement effective debt recovery and collection.

Debt collection and recovery are very important for a business’ cashflow.

If a company has a lot of bad debts or long outstanding debts, this will affect the cashflow.

If the finance department is not able to ensure the debts outstanding is within the credit terms given, then it is about to review the debt collection system of the company.

7. Review expenses regularly.

Management should take time to review expenses regularly.

Especially when the weekly cashflow forecast vs actual analysis is done, any obvious signal of expenses deviation need to be investigated and assessed.

By reviewing the expenses, if the management can do away with some of the unnecessary expenses, it will go a long way in helping to improve the cashflow of the company.

8. Maintain a good financing line of credits

Though the company may be in good healthy cashflow position, it does no harm in having a good financing line of credits standby in case of emergency.

With the readily available financing line of credits, it will not be a stress but it does not mean the company can simply go out and spend lavishly.

Having the line of credit readily available is just some sort of insurance for the operation.

9. Cash in on the discounts offered by suppliers.

Suppliers may offer some discounts for the business, and any company which operate on prudent cashflow management, will definitely take advantage of that.

To some extent, the discounts offered may offer the business some help in the cashflow position, all the more crucial during the challenging time like now.

10. Demand for deposit for big sales contract.

whenever a company has a big contract or order, it is good that it can get some deposit from the buyer, this will ease the cashflow of the business in fulfilling the orders.

it will be even better if the company can arrange installment payment from the buyers.

Conclusion.

Staying on top of the game in term of cashflow management is vital to the success of a business.

We should not let some missteps and miscalculation disrupt our cashflow management.

Take immediate action and rectify soonest possible, and you will not have to worry about cash crunch.

Always remember, take action, no matter how painful the action may be.

 

How To Manage Cashflow Effectively – Part II

Today we continue our discussion on how to manage cashflow effectively.

Having realized the importance of cashflow in a business, which in my opinion, is more important than profit.

We can have a very huge profit, however if it is not reflected in the cashflow of the business, then it is high time we take a closer look at the operation.

How do we prepare a good and accurate cashflow forecast?

To manage an effective cashflow, we need to ensure we are able to prepare a good and accurate cashflow forecast.

There are a few points we need to take care of in preparing the cashflow forecast.

  1. Identify the outflow and inflow of cash in the business.
  2. establish the right line of communication for flow of information.
  3. outlined the assumptions and factors used in preparing the forecast
  4. Prepare, discuss and monitor the prepared cashflow forecast.
  5. adjust and amend as the situations become clearer.

1. Identification of outflows and inflows of cash in the business.

We need to know what are the outflows and inflows of cash into the business.

For inflows, the obvious item is the revenue of the business, then in the course of business, we may secure some financing. both these two are the inflows of cash into the business.

Besides the above mentioned two, sometimes, shareholders may decide to increase the capital of the business, this will be another item as inflow.

As for outflow, we have to decide which are variable and which are fixed items.

For fixed item, it can be the rental paid for premises, and leasing of equipment which have fixed rental rate.

I like to categorize the outflow into operating, financial and capital in nature.

in terms of operating, we are talking about fixed overhead and variable overhead.

you can also classify into direct and indirect payment, just to make it clearer and easier to understand the natures of outflows.

Direct payments can be expenses such as utility expenses, salaries for the staffs.

2. Establish the right line of communication for flow of information.

In preparing the cashflow forecast, it is important that we have the right line of communication for flow of information.

If we want to have an accurate forecast on cashflow, it is important that the operation side know what information to furnish to finance staffs, so that they can use the right data to prepare the forecast.

Finance staff must also know who to look ask for information, the right data, same with other department like marketing and customer services.

3. outlined the assumptions and factors used in preparing the forecast

In preparing the forecast, we have to make sure we have the assumptions correctly spelt out, and the factors used.

Without showing the assumptions, readers and users will not know what are the basis and how the forecasts are prepared.

4. Prepare, discuss and monitor the prepared cashflow forecast.

a cashflow forecast prepared and just left it on the shelf will not serve any purpose.

the management staffs need to monitor and discuss the forecast every now and then, to see how much is the deviation of the actual from the forecast.

5. adjust and amend as and when the situation become clearer.

if the management of the business is able to monitor the forecast regularly.

they will be able to see the deviation of the actual from the forecast and if need be, make the necessary adjustment, so that the forecast is more reasonable and sensible.

We can also use the cashflow forecast as a tool to make business operation better and more efficient.

from the cashflow forecast and in the weekly review of the forecast, we can see whether we are not doing as good in our debt collections, if that is the case, then we can take the necessary action, may be to beef up the debt collections process, find out why the customers are not paying.

If we pay more than  as forecast, we have to find out the reason.

By doing so, we can improve our business process and operation efficiency.

Getting the real cash position to match the forecasted figures, require a high discipline from every one in the business, thus, the importance of timely review and analysis between the actual and forecast.

Most companies are not able to survive a short term cash flow shortage, if no forecast is available, business will not know where it goes wrong, not to mention to take the remedial actions.

Cash flow forecasting is tedious and arduous,  bear in mind, it is also a very important tool.

This critical process will let you know how much cash your business can generate, it can also enable you to know what you need to fund future expansion and working capital.

While your forecasts will never be 100% accurate, by preparing it frequently, you will develop an uncanny ability to make a more accurate forecast if you can devote the proper resources to cash flow forecasting sooner rather than later.

In my next article, I will talk more about how we can make use of this business tool more effectively.

If you want to learn more about cashflow, you may want to go HERE

How To Manage Cash Flow Effectively – Part I

Cash Flow, a term every business man is familiar with, it is also a term a lot of business man misunderstand.

So what is a cash flow?

Cash flow, to a finance guy, is the most important thing in a business.

However, if you go and tell the boss this, he will disagree, he will tell you sales is the most thing in a business.

if cash flow breaks down, definitely the business will break down.

People may argue without sales, you don’t have money coming into the business.

However people tend to forget when you start a business, you need capital, that is cash flow!!!!.

In a nutshell, cashflow is the amount of cash that is moving in and out of your business cycle at a certain period.

Positive and Negative Cashflows

If you have more cash flowing into your business than out of your business, then you have a positive cashflow.

That means you do not have to worry about meeting your payments requirement and settling your expenses especially the salaries of the employees.

On the other hand, if your cash flow position shows a negative cashflow, perhaps it may give you some worrying signs.

Negative cashflow may indicate your inability to meet your financial obligation, you may also have difficulty in paying for your expenses, worse still, you may not able to purchase goods to sell.

Thus, the importance of having enough money to meet all the business obligations is also knows as Working Capital.

What is the different between Sales and Cashflow?

Earlier I mentioned about sales and cashflow, and people think these two items are the same and one.

Actually the two terms are quite different, though these two terms go hand in hand and related closely.

Without sales, after the initial start up capital, there is no inflow of money to the business and this will create a big problem for the business to operate smoothly.

Hence, sales to certain extent is an indication how much money will be coming into the business.

What about Profit and Cashflow?

quite a few people like to think profit is equivalent to cashflow.

You can hear people ask a question – the company has so much profit, but why isn’t there money in the business at all?

Some are puzzled the business has so much profit but having difficulty to fulfil its financial obligation.

A good credit analyst will do the followings:

  • look at the profit and loss account of a business,
  • he will also look at the changes in the financial position of the business.

By looking at the changes in financial position of a business, it is easier

  • to determine whether the business has healthy and
  • positive cashflow, or whether
  • the business is facing acute cashflow deficit despite being very profitable.

Therefore, the management must learn how to read the statement of changes in financial position.

Importance of understanding changes in financial position.

This is to enable them

  • to grasp a better idea and take hold of the situation.
  • By doing so, at least the management has a rough idea
  • of what is the position of the liquidity of the business, and if need be,
  • take some actions to strengthen the cashflow of the company.

Why does cashflow matters and important?

Just imagine, if you do not have the cash in hand, a lot of things in the business will come to a standstill.

You may not be able to pay the salary of your employees, this will badly affect the morale of the staffs.

When suppliers hear you have cashflow problem, the first thing they do is to cut the supply and this will affect the operation of the business.

Worse, if the suppliers decide to take drastic action to recover the amounts the business owed to them.

This will definitely

  • damage the reputation of the business
  • when suppliers file for action to wind up the business or
  • put it under judicial management.

Managing cashflow and learning how to do it effectively, is a fundamental process.

A process which eventually will lead you to grow your business in a more profitable and sustainable way.

Once one has learnt and finally know the inside out of cashflow management, it is then the time to start looking at growth of the businesses.

Next I will be talking about How To Manage Cashflow Effectively in my next article.

Learn to manage cashflow

 

 

How To Prepare A Practical Budget?

Definition of Budget

Budget is a tool used by business as a guide, if it is prepared professionally, it can be a very powerful tool.

Budget is a business plan to enable the business to maximize the resource in order to achieve its plan or objective.

It is an estimation of revenue against the expenditure over a period.

What are the advantages of having a budget?

1. Having a clear business plan.

2. Act as a control of expenses.

3. Use as a benchmark to appraise the performance of the staffs.

4. Serve as an internal control feature for the organization.

5. Enable business to adjust and make changes when the deviation is too great.

1. Having a clear business plan

With budget, the business will have a clear direction in their business plan for the upcoming financial year.

Management can then plan their business plan based on the budget prepared.

After preparing a good budget, management can focus in achieving the target set.

2. Act as a control for expenses

after preparing the budget, the business can use that as a yardstick to ensure expenses are within the budgeted boundary.

Any deviation from budgeted amount will need to be investigated and action taken to rectify if it is human error.

3. Use a benchmark to appraise the performance of the staff.

Every year, business need to appraise the performance of the staffs.

To do that, the company needs to have some benchmark and barometer to assess the staffs’ performance.

Budget is a very good tool to appraise the staff performance, it is a more objective and transparent method.

Failure to achieve the target set in the budget, it leaves very little room for the staff to argue for his case.

Unless the budget prepared is unreasonable and unrealistic, then the staff may challenge the appraisal done.

If we prepare a very reasonable and realistic budget, this can be a very powerful budgetary control tool.

When it is used as the benchmark for staff appraisal, the targets are clear and not disputable.

4. Serve as internal control feature for the organization

when one set up an internal control feature, one of the feature it can use is the budgetary control.

Frequent analytical review of the budgeted amount against the actual achieve, the management is able to use that to find out the flaws and the shortcoming in the operation of the company.

As an internal control feature, and through analytical review, we are able to see weaknesses in the operation and take necessary rectification actions if need be.

We can also use budgetary control to tighten the control especially on the expenditure, be it revenue expenditure or capital expenditure.

5. Enable the business to adjust and make changes when the deviation is too great.

Through monthly analytical review of the actual against the budget, the management is able to make the necessary adjustment.

Budget is not rigid, it may become not realistic due to the changes in business environment, changes in government policies or any event which is beyond the control of the business.

When this happens, management must at the first instance to revise the budget and adjust the business plan accordingly, if this is not done, then the budget may no longer become achievable.

If you are interested in how to prepare a good budget, you can purchase a copy of my lazypeopleguide e-book on this topic and gain some insight of it.

In my e-book, I will provide a comprehensive layout of the budget preparation and what you need to look for.

As usual my e-book is for those busy business persons who do not have the times to go through lengthy report and write up about how to prepare the budget.

It is a more practical guide, and it is easy to grasp the idea and concept.

If you want to learn more or wish to find out more in detail, you may contact me either using the contact form or drop me a message in my email.

How Important Is Budgetary Controls To Your Business?


In business, one of the question people ask is – Do we have to do a budget?

then the question is – how important is budget to a business?

if we were to go into more details, you may come across the term budgetary controls.

So, what is a budget?

For a business, a budget is a plan to estimate the revenue and expenditure of the business for a period, normally it is over a period of twelve months, it covers the financial period of the business.

On personal level, a budget is a tool people used to control their expenses

We can notice the different between a company having a budget and one without any budget prepared.

For a company having a yearly budget, the company looks more organized and structured whereas one without any budget, will be like swimming in an ocean without any direction.

How important is budgetary controls to a business?

We have seen earlier that a company without a budget is like operating a business without any direction. It is more ad hoc than anything else.

Without a budget, is tantamount to without any planning.

Simple meaning of budgetary controls

Budgetary control is the mechanism of comparison the budgeted amounts against the actual performance of the operation.

The budgeted amount is the forecast of the revenue and expenditure of an organization based on past performance and the market conditions and current business environment.

It is a process of business planning involving financial planning, business plan and setting of business goals and so on. I will have a separate discussion on how to prepare a business plan HERE.

If budgetary control is implemented effectively and properly, it can be a very powerful tool for a business to monitor its operation, at the same time, achieving the goals set, not to mention to make the business more efficient and productive.

What are the advantages and disadvantages of budgetary control?

Advantages

1. Acted as a tool to assess performance of respective departments and divisions in a company.

2. Setting of reduction of cost as priority.

3. It helps to improve efficiency and productivity.

4. Improve discipline of staffs in valuing how they spend the company money.

5. It can be used a benchmark for appraising the performance of staffs.

6. Serve as a guide in assisting the company to achieve its long term goals.

7. Enable the company to compare the forecast ed expenses and the actual spending and make necessary adjustment.

Disadvantages

1. Information used in the budget is very subjective and may not be realistic.

2. Preparing a good budget is a long and tedious process

3. Inter departments coordination is challenging especially between operation and finance.

4. Comparison of actual and budget may be a problem when there is an adverse variant, it may demoralize the department concerned.

5. Reasonableness and realistic of the budget figures may be challenged by department if it is not to their favor.

6. Top management needs to give approval for the budget, if the approval is not given promptly, it defeats the purpose of comparison of budget and actual.

What are the limitations of budgetary control?

1. As we know, budget is based on historical cost, hence its accuracy and reasonableness are very subjective.

2. In a volatile economy environment, budget figures may look awkward and not realistic at all.

3. Changes in government policies and taxes structure may affect the budget.

4. Changes in nature such as natural disaster, market condition may affect the comparison between budget and actual.

What can you do with budgetary controls ?

1. We can use this to control the cash flow.

2. Operational controls.

3. Cost analysis for the business

1. Using budgetary control to monitor the cash flow.

budgeted cash flow forecast is another form of budgetary control.

with a proper cash flow forecast, we can monitor the cash flow when we compare the forecast and the actual.

2. Operational controls

by having a good budgetary control, we are able to identify the weakness and highlight the needs to take rectification action.

When the analytical review is done to compare the actual against the budget, we are able to identify the area need more attention.

At the same time, we can also use the analysis to implement better control.

3. Cost analysis of the business.

Budgetary control enables us to find out areas which need to be controlled.

using budgetary control, and from the analysis, we are able to find out which sectors’ costs are not in the norm of the business operation.

We can then take necessary action to arrest the worsening situation.

Conclusion.

Budget is a plan devised to help a business operate in a more orderly and systematic manner.

It is a yardstick for a business to measure performance and improve efficiency.

By having a good budget and using it as budgetary control, a business will be able to have a good business plan which cover all spectrum of the business.

With a good business plan, a business is able to improve and grow according to plan.

Therefore, let us prepare a good budget and use it in a positive way as a tool for budgetary control.

How a business face Resilience vs. Efficiency issue during COVID-19

Introduction

COVID -19 as we now know, have created a lot of challenges and issues especially for businesses in general.

Before the spread of COVID-19 pandemic in early 2020, majority of the businesses only thought about efficiency in their operation, hardly any management leaders consider resilience of their operations.

After almost two years of facing COVID-19 pandemic and counting the cost affected as results of the pandemic. A lot suddenly realize whatever they used to rely on may not work anymore.

In Business School, lessons learned on efficiency and how to drive for utmost efficiency are some common topics.

Efficiency seemed to be the key word if you want to be the top management leader.

Anyone who can show how to run an operation efficiently, others will look at him in high esteem and consider him the expert to keep the operation alive and popular.

But now? whether the efficient manager is highly regarded? that depends on a lot on whether he has some operational issues as a result of COVID-19 whereby almost everything comes to a standstill.

What is EIFFICENCY?

Efficiency is profit maximization with the lowest of cost and achieving it in the shortest time possible.

In good time and under normal condition, this seems to be a good doctrine to adhere to.

Any manager who can achieve results with the utmost efficiency is deemed to be the star performer.

Japanese coined the term – Just In Time management, This is the benchmark of efficiency at clockwork operation.

What is Resilience?

Resilience seems to be the opposite of efficiency in business world.

According to the definition in Marriam-Webster Dictionary :

Resilience is ability to recover to its original state or shape after some adverse conditions or something bad happen.

So in term of business, COVID-19 pandemic is a good example as almost all businesses are badly affected and whichever able to recover are considered to be very resilient.

Does Efficiency complement Resilience or contradict it?

We notice how COVID-19 had affected businesses over the last two years.

Some efficient companies seemed to do it badly as times go on since every thing seems to be on standstill.

Factories which used to be efficient were the hardest hit as they ran out of raw materials to manufacture.

They are not able to get the new supply in since suppliers also stopped working, so now the once efficient factories now are facing awkward situation.

They do not have enough to raw materials to produce, previously in their effort to cut down holding cost, they did not stock materials beyond what was required for production.

So is efficiency at the expense of resilience?

To be efficient, one of the common measure management take is to be lean and keep cost low.

However, COVID-19 rear up the ugly side of being efficient at the expense of resilience.


We can look at the following examples to have some ideas of how COVID-19 can provide a good case study on efficiency vs resilience.

1. Health care system.

For years, hospitals are trying to be profitable, be it public hospitals or private run hospitals, to do that, they will keep a tight rein on staffs especially on nurses and healthcare staffs.

During COVID-19 pandemic, hospitals are overwhelmed with patients and all these made the medical staffs stressed and overworked.

2. Logistic and Supply Chain

The current high cost of logistic and supply chain after the slowdown is very obvious.

During the height of the pandemic, some ports tried to be efficient during the good time and now are facing a lot of operational issues, due to the long jam and congestion as factories start ramming up their operation and cargo start to move again.

A lot of ships and tankers mothballed at harbor, at the height of it, you could see a lot in Singapore.

 

Photo taken by Chee Shi

3. Construction industries

In the good time, construction firms try to be lean as possible and keep minimum workers especially migrant workers. With the pandemic, when people can not travel freely, and workers movement come to standstill, construction firms suddenly find they are in a jam, as their workers especially migrant workers can not report back to work once they have gone back to their home towns for a break.

Efficiency and Resilience as Optimization .

1. Efficiency is short term.

2. Resilience is long term.

Therefore, do you prefer a long term policy or a short term solution?

How do we balance the two in order to achieve the objectives we are looking for?

COVID-19 forced us to innovate and learn new ways to manage our businesses.

The best outcome from the pandemic is seeing most of the businesses decide to take steps to innovate.

Those businesses which are adaptable and creative are finding the challenge to innovate and improve.

The use of Artificial Intelligent is making the businesses more robust and sustainable, hopefully can survive another severe and critical situation like COVID-19

Some businesses emerge stronger and better prepared.

Others take the opportunity to be more efficient and thus becoming more profitable.

Conclusion

A good lesson learned from COVID-19 is to fuse efficiency with resilience, finding the middle path to make the business stronger.

Fareed Zakaria, WaPo, 10/’20:

“The pandemic upended the present. But it’s given us a chance to remake the future.”

If you have any comments and feedback, please feel free to leave your comments in the comments section below.

I will be glad to get back to you.

Do you have any experience which you wish to share about COVID-19 and how you tackle the pandemic in term of business operation,  do share your thought here.