Business Strategies
Solution CFO

What is a Virtual CFO?
How do our Services Work?
How do you Benefit?
Become a Client
Become an Associate
Business Strategies
What our Clients are Saying
Latest News
Newsletter Sign-up
Refer this Site
About Us
Contact Us

To whet your appetite, here are a few strategies from our Virtual CFO team.

Gain More Control Over Your Operations

To manage means to control. Without proper controls a company will limp along with substandard performance and problems that seem to never get resolved.

But how do you achieve control in a business?

There are three simple concepts that make the process easy. If you understand and apply these concepts to any business problem, you will bring it under control.

Concept 1 - Control Process

The control process requires proper use of three elements -- information, trigger points and predefined actions.

Let's use the thermostat in a house as a model. Sensors monitor the temperature (information). When that temperature reaches certain limits (trigger points) a furnace or air conditioner will switch on (predefined action) and the temperature will be maintained within predefined bounds.

In business we apply the same logic. To establish control over any function we need three things:

  • Information to tell us how we're doing.
  • Predefined limits that trigger a specific action.
  • A set of actions that go into play when a predefined trigger point is reached.
When a business is out of control in any way, those three elements are either missing entirely or are not functioning correctly.

Concept 2 - Focus

The second concept is focus. You need to pick a specific business activity to work on. If you attempt to bring every aspect of your operation under control at the same time, nothing will get done. The error most managers make is in this area. They try to bring sweeping changes that lack focus and are therefore certain to fail.

Concept 3 - Follow-Through

Once you have focus and have the elements of the control process, you must follow through. Improving controls requires new processes and procedures and it is always hard to implement changes. You simply must follow through to establish a change that will last.

Let's take a simple example to see how to put these controls in place.

Let's suppose accounts receivable are growing and we feel that aspect of our business is out of control. What do we do?

Bullet 1 Focus We first decide that we will work on a better process for collecting on past due accounts. This is a specific, well defined problem.

Bullet 2 Get information We next establish a system to clearly show what is happening. We decide to get a report every Friday listing every invoice that is past due.

Bullet 3 Set predefined limits We decide to set three limits or trigger points. Each limit will cause a specific action to always take place. Our three points are:
  • Invoices that are past due.
  • Invoices that are 30 days past due.
  • Invoices that are 60 days past due.
Bullet 4 Establish Specific Actions We then establish the following actions that always take place at each trigger point.
  • When an invoice is past due, the accounts receivable clerk calls the customer. The clerk makes these calls every Monday morning on every invoice that is past due.
  • At 30 days past due, the accounts receivable clerk stops calling the customer and places the account on credit hold. She sends a letter informing the customer that they are on credit hold and routes a copy to the sales department informing them that no further orders can be shipped until all past due invoices are paid.
  • At 60 days past due, the accounts receivable clerk sends the account to the collection agent.
Bullet 5 Follow Through Our final action is to continually monitor and follow through to see that information is generated as planned, that the receivable clerk makes calls each Monday morning on all past due accounts, that every invoice that hits 30 days past due is put on credit hold with a letter sent to the customer, and that every invoice 60 days past due is sent to the collection agent.

From our experience, you will have failure on every point three times before your people really understand the task and recognize that you are committed to its implementation.

This simple system will quickly bring receivables back into control.

Using the same method, you can gain control over any aspect of your business.