Since I moved to Chicago from Montreal I have switched gears when it comes to watching the horizon for rough weather. In Montreal, you had to look out for snow, ice and sub-freezing temperatures. While Chicago also has winter, we have discovered that we need to pay much closer attention to spring weather because you never know when high winds might arrive. My wife learned this particularly well when she wound up standing on someone’s front porch while tree limbs flew by! She now knows not to walk home from work as the sky darkens.
Businesses must also know how to spy storm clouds on the horizon. Sometimes the storm comes from outside your business; the economy over the last few years is a good example. At other times the storm comes from within your business, so you must be able to look within and accurately predict problems that may occur. Business owners can get incredibly busy and often fail to step back and evaluate how things are going.
Pay close attention to your financials, even when it seem like things are going well. A strong economy and great sales can often mask problems within your operations. Some questions that you might ask are:
• Are you keeping your costs under control? Is your overhead keeping you from being profitable?
• Are you allowing your cash cycle to get too long by not collecting payables in a timely manner? The bottom line of a P&L is not enough, what does your cash flow budget tell you? Do you have a cash flow budget?
• Are you allowing too much debt to build up? Leverage is a two edged sword; it can be great in a rising economy but deadly when revenues fall.
• How do your financial returns compare to your competition and industry? Are you a leader or a follower? A little research here can go a long way.
If you discover clouds on the horizon of your financials rather than hope the storm goes the other way, you need to take action to correct the problems in your operations that are creating the clouds. An easy way to begin analyzing the problem is to ask the question why, and continue asking why until you find the root cause. I have heard it said that it takes at least 5 why’s to get there. Once you have found the root cause, you must plan action to correct the basic problems.
As a business owner or executive, it is incumbent upon you to stay focused on these areas and see the problems through to a solution. While it is true that you will often delegate work to others, it is important that you keep tabs on work as it progresses to ensure that change happens. Be vigilant to ensure that you are ready for the storm!