CPA Australia has developed the following list of issues and tips that management accountants, as strategic business leaders may consider, to help steer their business through tough times. In tough times, strategy is key and organisations will be looking to management accountants for leadership.
Forecast demand over the next 12 to 24 months and identify potential excess capacity. Investigate ways to reduce such capacity through for example, better labour scheduling if using casuals, disposing of excess assets or not renewing particular leases on equipment.
Reducing costs for your customers
Understand your customers’ business and how your products and services could be delivered in such a way to reduce customers' costs. This will allow you to identify the challenges facing your customers and the risks to your sales that you may face. Also, it may also engender a spirit of loyalty in your customers.
Don’t be afraid to ask suppliers for discounts if you are experiencing tough times. You may be pleasantly surprised with the results. When asking for discounts with suppliers, use the guarantee of volume to promote a win-win perspective rather than taking an adversarial approach.
Do a quick audit of your resources and eliminate any wastage. Simple things can save money. For example, paper recycling, stopping excess energy use, better control of consumables, and stationery.
Fixed and variable costs
Take the time to understand the fixed and variable cost components of your business and track them through regular reporting.
Understand how external factors influence your business and its cost structure. Focus on those costs within your control. For example, take a critical look at underperforming divisions and those with excess capacity. Minimise losses by closing those parts of the business.
Make decisions in the context of the business, your industry and the economy. Understand how decisions affect the business overall. A robust, but flexible model will help you to make sound strategic decisions. Industry analysis will show you how well you are positioned in the market. This analysis will help to highlight areas of competitive advantage or potential areas of concern.
Cash flow control
Better management of cash flow will not only help to protect you from liquidity problems, it will also improve your bottom line. A disciplined focus on debtors and inventory will release cash tied up in working capital. Reduced working capital requirements will reduce pressure on funding arrangements, which may lead to reduced finance charges as well. Every additional day you improve your operating cycle is worth money.
Performance management systems
High performing businesses focused on maximising operational efficiency receive significant benefit from using their performance management systems to monitor key performance variables, enabling them to manage deviations from targets and hold management and staff accountable for pre-determined targets. Business experiencing tough times usually focus on maximising operational efficiency, therefore you should consider using performance management systems that help you monitor performance variables, such as the Balanced Scorecard.