Showing posts with label best management practices. Show all posts
Showing posts with label best management practices. Show all posts

Wednesday, February 20, 2008

Accountability in Business

Copyright 2008 by Charles R. Schaul, Boulder, Colorado. All rights reserved.

In a recent workshop the participants were given a form to complete -- a self-evaluation of how accountably they live their lives -- both business and personal. The evaluation contained ten statements, and the participants rated themselves for each statement on a scale ranging from “never” to “always”. Some of the statements were:

• “You hold yourself accountable for the commitments you make.”
• “You blame others for your failures.”
• “You tell others, in advance, of the consequences should they not keep their commitments.”
• “You hold yourself accountable for the commitments others make to you.”

The participants then scored themselves on the evaluation. The results generated a typical bell curve with a few people feeling very accountable, a few feeling not accountable at all, and the rest falling somewhere in between.

Then the participants were asked to evaluate their organization (i.e., their company, department, office), using similar statements. Again the statements were rated from “never” to “always”.

Interestingly, the total of the company scores were much lower than the total of the individual scores. In other words, the individuals believed they behave more accountably than others around them in the organization. I’m told that for every group participating in the seminar, the results are the same -- the individuals believe they are more accountable than their associates.

Well, you may ask, “So what?” Or, “What is accountability, and why is it important?”

Angela Thoburn of Opportunities Management Inc. created as good a definition of accountability as I’ve read. Angela says “Accountability is an agreement to acknowledge and accept the consequences for delivering or failing to deliver certain results or behaviors.” I shorten it to “Accountability means agreeing to accept consequences for behavior.” If you are accountable you commit to produce results (or behave in a certain way) -- then take action that either does or does not produce what you wanted -- and accept the consequences for the outcome, good or bad.

Consequences can be either natural or contrived. For example, if you fail to perform a task and blame someone else, people lose trust and confidence in you. That’s a natural consequence. If on the other hand, you fail to perform a task and blame someone else, and your pay is reduced, that’s a contrived consequence. Your pay isn’t reduced because you failed, your pay is reduced because others have lost confidence in you. Natural or contrived aside, accountable persons accept the consequences of their actions, good and bad.

Why then is accountability, or acting in an accountable way, important to individuals and organizations?

Let me ask another question. Have you ever tried to get something done by people who didn’t meet their commitments, blamed others for there failures, and then were not required to accept the consequences of their action? Frustrating, isn’t it.

Not only do you not get anything done, if you allow the situation to persist unchanged, you will never get anything done.

A precedent for unaccountable behavior is established. Many businesses operate this way, and the owner wonders why he or she has to work so hard and do “everything” him or herself. It’s because their supporting staff knows they won’t be held accountable -- the owner established the precedent.

Changing a precedent requires hard work, a long time, and sometimes serious upset to an organization. Requiring people, including yourself, to change behavior to accountable from unaccountable styles, is something akin to pulling teeth. So, if your organization scores low on an evaluation of accountability, get out the pliers and start pulling. In spite of the hard work, you’ll be glad you did.

Charles R. Schaul, Partner of SixPillars Research Group, focuses on increasing business profits by resolving the problem of customer attrition. Aligning companies with their customers; generating and implementing strategic initiatives; and promoting employees’ customer focus through commitment, responsibility and accountability combine to achieve the result.

Thursday, February 7, 2008

Pay Bills with Cash, Not Profit

Most new businesses and most growing businesses have the same problem. Cash, the lifeblood of business, is scarce. Meeting payment obligations is a problem. Some businesses even fail because although profit is excellent, there is not enough cash to pay the bills.

Thus, the basic principle of business: “Cash is King.” CASH, NOT PROFIT, pays the bills. Without cash the walls will tumble down. The problem is worst for three kinds of businesses: those that are starting and need cash to finance the startup; those that are growing quickly and need cash to support the growth, and those that are declining and need cash to offset losses.

It is amazing how many businesses do not forecast cash flow. Profit forecasts abound, and of course are valuable. But the basic tenet, bills are paid with cash, not profit, seems forgotten, and forecasts of cash flow frequently don’t exist – even in many well run companies.

Without a forecast of cash flow, companies react to cash shortages. With a forecast, companies can be proactive about cash flow problems and take steps in advance to alleviate cash shortages. Cash forecasting leads to cash planning.

Cash flow forecasts can be simple or very complex. For a simple forecast use a form like the one shown below. In the disbursements (payments) column show what payments are coming up, and when. Don’t forget unusual payments, like quarterly payroll taxes, or insurance premiums and annual licenses or fees. Also include payments for new equipment, inventory, WAGES, etc.

In the income column show all the expected income, and when it will be received. If the business has accounts receivable, be sure to use the date the money will come in, not when the sales are made.

Date

Item

Cash In (Received)

Cash Out (Paid)

Balance


Beginning balance














The beginning cash balance shown in the first line is the amount of cash on hand when the forecast is begun.

If a cash shortage is seen in the forecast there are many ways to resolve the issue. Slow down the payments schedule by negotiating with vendors for extended time to pay. Speed up receipts by shortening credit terms or offering discounts for early payment. Use credit cards or establish a bank line of credit to cover the cash shortages. Use personal cash resources if necessary, or borrow from family or friends.

For fast growing businesses, even consider slowing down the rate of growth so the profit earned can stay even with the expanded need for cash

Careful cash forecasting and management can solve many problems. Forecasting discipline and spending discipline save many a business that would otherwise fail.

Charles R. Schaul, Partner of SixPillars Research Group, focuses on increasing business profits by resolving the problem of customer attrition. Aligning companies with their customers; generating and implementing strategic initiatives; and promoting employees’ customer focus through commitment, responsibility and accountability combine to achieve the result.

Copyright 2008 by Charles R. Schaul, Boulder, Colorado. All rights reserved.