Thursday, October 25, 2012

Long Term Financial Planning

A probably angry Lee Iacocca was indicating that finance is something that has to be pre-planned, planned, re-planned and even post-planned. Financial planning in itself does not involve just setting budgets, wage rates or deadlines. It is all about getting to know realistic work schedule, the manner in which they can be executed, back up plans that can be used and the least cost with the help of which the entire project can be executed. So basically, financial planning and growth forecasting, both involve, the answers to the 4 important questions, why, when, where and how (answers have to be cost oriented).

Steps in Long Term Financial Planning

Step 1: Let us take the example of a coffee shop, whereas a financial planner, one has to find legitimate answers to 4 questions, namely:

Why should we be producing a specific item on the menu card? (consider cost of production and sales price)
When should we produce such an item and for what time duration? (bear in mind seasonal costs, inflation of raw material prices)
Where should we produce the item, right in the shop or some production center? (consider transport cost, nature of goods and selling cost)
How should one produce the item, manually or mechanically? (consider equipment and personnel cost)

Step 2: The second step is to assess your business environment. In this step, surveying the competitor's performance, pricing and distribution is an absolute necessity. In such a scenario, you may also prepare a cost sheet of the financial features of production, namely, the money that you would have to invest as a manufacturing cost, its sales cost, and the profit that it would yield. Logically speaking, the sale price should be more than the cost price and the return over asset ratio/return over investment ratio should be healthy. While finalizing these three figures, you will need to take into consideration 3 important aspects.

Average spending capacity of your customers.
Your competitor's quality, quantity and price.
Popularity of the product, potential market, customer retaining capacity of the product, etc.

Though the trend of such products is more experimental in nature, they might become full-time, public favorite products, hence it is also important to make a financial provision to recover losses, that arise in the experimental period, until the product establishes itself in the market.

Step 3: The third and fourth step are more analytical in nature and from the finance point of view, they are also quite expansive. The idea that you need to implement in the third step is allocation of resources in such a manner that you tend to make a genuine profit in sales, during the long run. In this step, you will be using and analyzing cash flow statements on almost a daily basis. The key is to have uniform cash outflows for consecutive days/months/years. Cash outflow is basically all expenses and losses. Losses are quite uncontrollable but expenses are definitely controllable. Hence search for raw material sources, manpower and production processes that will help you to maintain a uniform and low per unit cost for the item/product. For example have regular suppliers, who will supply at an agreed and uniform cost. This uniformity will eventually come in handy to curb and control unexpected losses, and will also help you to keep a good hold over the market.

The second part of the third step is making monetary provisions. This is absolutely essential due to the fact that no business is risk-free. Such provisions include advance to the raw material supplier, insurance, provisions for bad debts, extra services, etc.

Are You Taking The Right Approach To Marketing?

I always find it interesting that many small business owners don't appear to believe that marketing is a priority within the business environment. There seems to be an appreciation of the importance of various other tasks, but there's often a limited approach to the world of marketing.

What this often means is that this subject only really becomes more of a priority once there is a direct problem being faced. Typically, we might see this as being represented by a lack of customers, sales and income. In such situations, there is the sudden need to work out what's going wrong.

How does this work out? The problem with such an approach is that marketing tends to work best when it is planned and is part of an ongoing process. Indeed, it's something that I would suggest needs to be at the very heart of any business. I can certainly see, however, that it may sometimes take a back seat.

The issue here may be that there are plenty of other issues that may appear to be more of a priority. As an example, you may find that you spend a lot of time stepping in to deal with emergencies. Although you may have a number of employees, there's a fair chance that you see your own role as involving some degree of direct activity.

If staff members are attempting to deal with an unhappy customer, for example, then there may be a perception that having the boss available to get involved might ease the situation. This may be true, but you do need to think about the overall balance of the situation. The truth is that getting involved with such tasks means that you won't be carrying out other activities.

It's frequently the case that marketing is classed as one of those other activities and gets left out. What this can mean is that the marketing performance of the business can tend to suffer, having an impact on overall income levels. You may already be aware that this is happening and you can be sure that such a scenario means that you will be losing business to rivals.

If you believe that you have a problem, then there's a fair chance that there is something wrong with your existing marketing strategy. It may be the case that, in theory, you have a sound strategy in place. The problem may be with the manner in which that strategy is actually being implemented. It's hard to identify the problem without sitting down to investigate it further.

How Social Media Engagement Enhances the Overall Customer Experience

We can look at social media first by focusing on traditional methods of communication. Traditional media including radio, television and magazines implemented one-way, static messages ideal for viewing and not responding. Traditional advertising methods required the business to get space in newspapers, magazines or create a television commercial. These were expensive and their impact could not be easily measured.

Web and mobile technology has made it easy for anyone to create online content and distribute it to audiences online for free. This reduces the cost of advertisement as you, as a company, do not have to part with large sums of money to have your ads published. What's more, distribution is almost instant.

Social media comes in many forms: reference sites (Wikipedia), blogs, micro blogs (twitter), social networks (Facebook), discussion forums, social bookmarking and voting sites (Digg), virtual worlds (Second life) and media sharing sites (YouTube), which are vital in enhancing the customer experience. These are visited by millions of people around the world every day and your business is sure to reach many people in a short time. As we speak, it is very probable that your customers and competitors are already using social media.

The first strategy to focus on is monitoring. Customers and competitors are out there on the web talking about your business or products. Giving a response or taking part in the conversation will build a sense of trust and confidence they have in you. Before you respond to any questions or provide information, you need to know what they are talking about, where it is being said, and who is talking about it. Tools abound on the web which search for your name, business name or product. Set up an account on your RSS feeder reader and monitor the feeds daily. Such tools include Technorati search, Google news search and Social Mention just to mention a few. Through this, you will be able to get complaints about your products, get suggestions on how to improve and what they love about your products. You can also find out what people say about your competitor products. This will put you ahead of competition, while providing customers with what they want.