All this month we’re debating the pros and cons of “doing nothing” as a lead-up to my September presentation at PRINT 13. The “doing nothing” refers to initiating a strategic change – including when and why you should do it. Last month, we looked at operations. This month, we turn to the backbone of any printing business: The financials.
For the financial perspective, our approach to decision-making always starts with the company’s financials and a business valuation, as they provide you with the parameters and perspective you need to consider options.
We are assuming that your company has solid grip on its financials, and that your reporting is sound. If the financials are not in order, and cannot accurately be put in order, there are only two things you can do: Close or sell the business.
When Doing Nothing is Okay, and Why You Want a Dilemma
In the Operations post from last week, operations guru Ed Klaczak presented you with a clear-cut example of what would happen if you did nothing. Processes would deviate, consistency would suffer, and errors would occur.
Ed referenced the daily operation of the business, and it was hard to deny that doing nothing in that example was detrimental. But there are times, when doing nothing is a smart choice.
Factors – Financial and Otherwise - to Consider in Your Decision-Making
Let’s say the numbers make sense, and you’re in a position to make a clear choice. What should you consider from a financial perspective as you make your decision?
-Cash-Flow. “Always start with cash flow,” Ron said. If you’re looking to make a new large and expensive purchase, you first must determine whether the revenue generated allows you to meet the loan requirements. If you have a solid understanding of your cash flow, not only can you make this decision, but it can help you shape your negotiations with your lending institution.
Bottom line, no matter what you intend to do, you need to pay the monthly installment on the bank loan. Is the cash flow sufficient to pay the indebtedness and all other mandatory operational expenses? If not, you could be headed toward a cash trap, which we explained in a previous post.
-Sales. Once you have a solid understanding of your cash-flow, what will the sales revenue be for the endeavor? Will it be enough to cover the project? And what is the net profit? You’re not going to take on any project if you wind up neutral or with a loss.
-Timing. Another important factor is the timing of the initiative. When will this continued need for cash flow occur? Is it in the midst of your busy season? Is business slumping because of seasonality, which will necessitate a delay? “When you act is as important as why and how you’ll act,” Ron said.
In considering these three elements, Ron reflected on the post on operations from last month. Ed Klaczak had strong recommendations for moving toward a quality-improvement system. His reasoning was hard to deny, but Ron would have analyzed the impact of Ed’s recommendations in terms of cash-flow and sales. The cold hard reality of the situation might have dictated the move either be delayed, or perhaps scaled to fit the cash-flow requirements.
(A note: Ed Klaczak is keenly aware that any type of decision impacts the entire organization, which is why we posted on this need for a Balanced Scorecard Model, in which the impact of any new initiative is charted throughout the organization.)
Both members of the Alliance strongly agree on the need for financial and operational data as a means to make decision-making possible. As Ron notes, “If a businessman refuses to make decisions out of ignorance, then we can say that he has placed his business in jeopardy.”
Photo by: Alan Cleaver.