Regardless of the nature of the business, most troubled companies can trace their problems to one or more of six common management mistakes.
- Failure to review and revise sales forecasts.
When a company has a recent history of consistent yearly sales improvement, it is often assumed that uninterrupted growth will continue. But when overly optimistic sales projections aren=t met operating results suffer.
The solutions. Look at orders from major accounts. If they’re down, find out why. Compare the previous year’s projections to actual results and ask what should be done to avoid similar mistakes in current forecasts. In addition to comparing dollar sales to previous years, compare unit sales and the quality of orders received as well.
- Inattention to financial reports.
When business drops off, owners tend to direct their attention to sales and marketing. This often involves increased traveling, with more visits to sales representatives and customers in an attempt to bring in more business. As a result, key financial reports are put on the back burner and left there to simmer. Profit projections and cash flow forecasts aren=t reviewed as diligently as they should be. Slowly but surely, the company begins to slide into financial trouble.
The solution. Designate key people to review all financial reports and to bring warning signals to management as soon as they appear.
- Weak purchasing controls.
If too many employees are authorized to make purchases and business softens, a company can be faced with increased costs and reduced margins.
The solution. Purchasing systems and controls should be fine-tuned when business is good. Regular vendor reviews and price checks should be a routine part of the purchasing function. Buying authority should be delegated to as few people as possible. Regularly purchased, low-ticket items should be reviewed by purchasing personnel for possible automatic periodic shipments at lower prices.
- Failure to modify product lines.
Too often, companies continue to offer certain products so they can claim a Acomplete@ product line, even though sales are negligible and margins unacceptable for those products. The result is higher hidden costs which can severely damage the total profit picture.
The solution. Schedule quarterly line reviews. Make tough decisions about what the company sells. Analyze the real cost of carrying slow-moving items. Don=t hesitate to weed out unprofitable products.
- Doing business as usual.
Be flexible and be prepared to move quickly. For example, just because it’s always been your policy to consider increasing prices once a year doesn’t=t mean that=s the best policy for today=s business conditions.
The solution. Keep an eye on costs. If they are increasing beyond expectations, take a hard look at market conditions and consider raising prices if sales will not be materially damaged.
- Failure to motivate good managers to stay with the company.
When the business climate worsens and key employees find it more and more difficult to produce good results, they frequently exert extra pressure on other employees. Raises and bonuses are cut back, or even eliminated, as the company=s performance weakens. Faced with such conditions, the best employees will invariably begin to look around for better opportunities.
The solution. Even when it appears that the company can’t afford it, it may be desirable to offer performance incentives and even increased compensation. A short-term alternative that can boost morale is to give key personnel greater recognition and more responsibilities.