Five ways systems and processes can negatively affect your organisation

“A business that looks orderly says to your customer that your people know what they’re doing.”― Michael E. Gerb

Systems and process, the ‘how’ you do the things you do in your organisation, may seem boring and of not much importance, but they matter more than think.

Inefficient ways of conducting your work can include using outdated tools or technology, double handling information and a lack of transparency in the work being done. These are some of the most common ways systems and processes are outdated and inefficient. Using fax, paper forms and technology that hasn’t been updated in years are specific examples of these.

There are five ways this can negatively affect your organisation.

1. Frustrate staff

Something small may not be annoying in itself, but if it has to be repeated multiple times a day, every day, it can quickly become frustrating and demoralising.

2. Poor customer experience

When your internal systems are weak, your customers and users of your services are often impacted by a poor customer experience. Conversely modern streamlined processes often result in great customer experiences.Customers using good mobile applications to book services often comment on positive experiences such as not having to re-enter personal details (as they are saved in the app) and being able to make their booking at any time of the day.

3. Dangerous

Manual outdated processes have a much higher chance of mistakes. For example paper forms can allow endless mistakes to occur – often undetected – whereas an electronic form with built in validations can ensure data accuracy and prevent a number of mistakes. Mistakes and errors can administrative annoyances or they can be much much worse.For example a paper form will almost always ask the customer to fill out their name and personal details such as date of birth, every time they complete the form. Electronic forms can of course save these details and provide a greater customer experience. Furthermore safeguards can be put in place to prevent errors and increase accuracy. One organisation that was using paper-based forms reported that a number of customers had changes in their date of birth from form to form, highlighting just how susceptible to error the continued use of paper forms can be.

4. Costs

The longer something takes and the more mistakes that need to be addressed, the more it will cost your organisation. This is especially true of staff, which are often one of the biggest overhead costs for organisations. The cost is both financial and opportunity cost, as other work cannot be completed if staff are too busy correcting errors. Non-value tasks hinder an organisation’s ability to maximise the impact they are making, as staff are pulled away from value add activities to complete non-value, but perhaps urgent, tasks.

5. Can’t grow

If your organisation grows with inefficient processes and systems, it runs the risks of having more frustrated staff, more customers with a poor experience and more mistakes that need your attention. As you grow, the impact that your organisation is making is likely to be greater, however the problems and inefficiencies currently being faced will also be greater which may in turn may cause staff to leave, leave customers unsatisfied and result in the objectives of your organisation not being met.

You may be asking, how do you know if you have internal systems and processes that require your attention? Two key sources of feedback are your staff and your customers. Pain points and/or complaints will often reveal a poor system or process. Furthermore, intuitively you will know that certain systems and processes need updating. Chances are you’ve had good experiences as a customer with other organisations or you’re using a system that the whole world knows is outdated and have a thought to yourself, there has to be a better way.

CBB has a number of consultants with experience in processes mapping and the streamlining of systems and processes. For an obligation free consultation, please contact us on 1300 763 505.

 

Dimitri Matsouliadis
Business Consultant
Email: dmatsouliadis@cbb.com.au
Phone: 1300 763 505


Building a cash bridge

Building a cash bridge

“When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000 pound trucks across it” – Warren Buffett

All organisations need cash to live, breathe and operate on a daily basis. Cash is very much like oxygen, not really a big deal until you don’t have any and then it’s a really big deal, really quickly. Furthermore it doesn’t matter how healthy you are, if you’re without air for a short period, you’re in trouble.

Organisations are exactly the same. An organisation can be extremely prosperous for many years but become unstuck if they are left without the required cash to meet their commitments for even a short period of time. How long will employees be willing to work without pay? How long will suppliers continue to provide their services on credit?

It’s a scary thought, but cash flow risk can largely be mitigated by building a strong reserve. All shortfalls in cash must financed. They can be financed through financiers such as banks, your suppliers offering credit, or your own cash reserves/savings.

Cash reserves are the safest, easiest and most reliable safe guard against cash flow issues.

To state the obvious, cash is an asset that your organisation owns, an asset that you control and, most importantly, an asset that doesn’t need approval from a third party (such as a bank) to access.

So how much cash should your organisation put aside? This is a difficult question and will largely depend on management’s risk tolerance and the perceived risks that your organisation may face in the future. For example, risks such as your cash-flow cycle, income model (ie block funding in advance or individualised payments in arrears) and competitor landscape should all be considered when evaluating risk. Understanding the kind of financial or cash flow risks you are facing will help you to identify the level of reserve needed to protect your organisation.

An organisation with management that are not overly risk averse and not overly concerned about any perceived future risk, may not believe that they need large cash reserves. Conversely an organisation that is worried about the future risk they may face, may choose to build large cash reserves.

As a general rule at least three months of all expenses should held in cash in reserve. Ideally six months will be held, and 12 months plus is, of course, a much more conservative approach. When evaluating how much cash to hold in reserve it is also important to consider the timing associated with risks. For example if your organisation has a risk of losing funding but will be given a minimum of three months’ notice, then this should be factored in.

The rationale here is, if no income at all came in – not a single dollar – how long would you need to operate to get yourself back on track or at minimum payout all your obligations to staff and third parties? However if the likelihood of you losing all your income at once is low, you should reflect this when setting your reserves level.

As outlined above, a number of factors need to be considered and analysed. When considering these factors, an independent qualified adviser will be able to help you navigate your options relative to your risk exposure, and ensure that you calculate the appropriate amount of cash reserves for your organisation.

To find out how CBB can assist, please get in touch with Dimitri:

 

Dimitri Matsouliadis
Business Consultant
Email: dmatsouliadis@cbb.com.au
Phone: 1300 763 505


Should you diversify your income?

We’ve all heard of the expression – don’t put all your eggs in one basket. It’s a valid expression with merit. If you earn all your income from just one source and that goes away, then it’s highly likely that your organisation will go away too. So does that mean you should diversify your income? Not necessarily.

Before we jump into whether or not you should diversify the income of your organisation, we should cover what diversification of income is.

Income can be diversified in two ways

1 Different providers of the income

These are the actual people and organisations who hand over their money to your organisation. The two extremes here would be one customer vs thousands of customers. It worth noting that we are talking about people and organisations that provide income to your organisation and as such this includes grants and donations. Another way to look at this may be one annual grant vs 20 annual grants.

Continue reading…


The deeper purposes of a budget

“Failing to plan is planning to fail” – Alan Lakein

A budget may seem like a boring administrative task that “needs” to be done by the finance team to keep stakeholders like the board happy, but a good budget serves a much deeper purpose.

A good budget will help your organisation:

  1. Deliver its social impact
  2. Know if you’re on track
  3. Plan for success
Continue reading…

5 must-have financial skills for NFPs

What does your finance team look like? Some of you might be asking ‘what team?’ As a core cost that is rarely funded under grant programs, financial management is often an ‘add-on’ to another admin role within small organisations, whilst larger, complex not for profits often have a full team with a range of skills to manage day-to-day financial transactions as well as planning for the longer term.

So, what your team looks like will depend very much on the size, nature and financial structure of your organisation. But no matter the size of your team, there are some financial skills that all not for profits should have access to – whether that be in-house or outsourced. Below we’ve put together our top five.

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Does your finance manager have a seat at the leadership table?

By Ron Yates, former Senior Financial Consultant

What role does your finance manager (or person responsible for your finances) serve on your leadership team? Are they ‘just a bean-counter’, watching the budget, worrying about revenue and keeping expenses down, or do they play a more strategic role?

The role of your most senior finance employee is clearly to manage your funds. They need to be on top of the numbers and reporting these to the board and leadership team. They need to be ringing alarm bells when they spot financial risk, and they need to manage the work of any other resources with finance functions. They need to ensure that systems and processes are in place that protects your organisation from financial risks – particularly fraud and insolvency – and that your organisation meets financial compliance and reporting requirements.

But a finance manager’s role goes beyond balancing the books and ticking boxes. In this article, we look at the importance of ensuring your finance manager has a seat at the leadership table.

Risk-ready finance managers

Smart organisations will be looking for much more from their finance manager. For example, we often think of our finance people as risk averse. They are probably the member of your leadership team most likely to hold up the ‘stop’ (or at least the ‘slow down’) sign when your creative team member has their latest bright idea. While this may have been appropriate in the well-established organisations of the past, we’ve seen the evidence (including in big corporates) that in our fast-paced world, organisations that don’t innovate will wither and die.

Risk-ready finance managers are essential for all organisations, not just start-ups or those chasing growth. This doesn’t mean that we’re expecting our finance managers to be careless with the money – but they need to help the organisation understand the financial issues arising from opportunities presented. For example, an organisation looking at loan financing to invest in a new venture needs a finance manager who can take a robust look at the opportunities – what are the costs of the loan, are the revenue projections realistic, what level of risk is the organisation exposed to, and what are the potential benefits? A finance manager who can map this out with an open and enquiring mind will provide valuable information to support leadership and board decision making.

Finances for the future

Similarly, you need your finance manager to take a long-term view. How are you gearing for the changes on the horizon? For example, the NDIS, consumer-directed care, further digital revolution or some other external or internal driver. Your finance manager needs to fully participate in leadership discussions about future direction, and this needs to be reflected in your finance strategy. If you have to change your business model, your finance manager needs to be working through the downstream impacts, such as managing any assets or investments differently to lever funds for investment or cashflow. If change means that you have to restructure or reduce costs, the decisions about how that plays out across the business sits with the leadership team as a whole, but your finance manager plays a key role in scoping out the financial implications of different options – again, informing decision making.

Leaders need to know their numbers

This doesn’t mean that the rest of your leadership team should sit back and let the one with the calculator worry about the money. Each member of your leadership team needs to understand the organisation’s finances, how external market factors impact your organisation and how their team contributes to (or takes from) the bottom line. It’s also important that they understand the financial consequences of the decisions they make on the organisation as a whole, and the knock on effect this has on delivering social value. They need to role model good stewardship of your funds to their teams, just as much as the finance manager does. Most of all, they need to be prepared to make the difficult financial decisions collectively, as a team, rather than protecting their little kingdom at the expense of the rest of the organisation. A good finance manager, who can present information clearly and support evidence-based decision making, is a vital contributor to this kind of leadership performance.

For more information on CBB’s consulting services, please contact us via email consulting@cbb.com.au or phone 1300 284 364.


How financially savvy is your board?

By Ron Yates, former Senior Financial Consultant

I saw some promotional material recently that asked if your board knew the difference between cash and profit. The question gave me cause for concern. Not for profit (NFP) boards hold ultimate responsibility for the financial viability of their organisations so, while this is clearly a legitimate question, such a fundamental gap in financial understanding at a board level represents a significant risk for any NFP.

Many NFPs struggle to recruit board members that can bring an understanding of the cause, connection with the client group along with financial and management experience necessary to run the organisation. But the days are long gone when not for profits could get by with a treasurer who knows the numbers and little else by way of financial acumen. The context that we operate in, and the significant change to business models as a result of the NDIS and consumer directed aged care, mean that you need a board with financial nous.

So what skills do my board members need?

We’re not suggesting that everyone on your board should be a fully qualified and paid up member of the accounting profession. Board members don’t need to know how to prepare accounts, but they do need to know how to interpret them, and it goes beyond simply understanding the P&L. A proper understanding of organisational financials is critical to effective strategic decision making and risk management. Here are some of the things we would expect financially savvy board members to be able to do:

  • Spot issues and trends in the monthly reporting.
  • Understand the detail of the balance sheet, not just the bottom line. For example, fixed vs. current assets and their impact on current and future liabilities.
  • Understand a cashflow forecast.
  • Understand different types of funds, including the restrictions on grant or contract funding, and the implications on solvency.
  • The cost of running (and closing) the business.
  • The reserve levels required be the organisation.
  • Your strategy for investing reserves, and how this contributes to your longer term business strategy.
  • Make decisions based on financial evidence and projections.

Bringing board members on board

When bringing new people onto your board, don’t assume that their previous board experience will be sufficient for them to interpret and question your financials. Your way of representing different funding programs or cost centres is likely to be different to their previous organisation.

Without providing an adequate briefing to new board members on how the accounts are presented, there is a risk that they might make incorrect assumptions and misinterpret the numbers. Always take the time to run through financial reports with your new board members to explain what the information represents in the context of the organisation.

It’s a two-way street

Don’t forget that the board/management relationship is a two-way street – this applies as much to the financials as operational matters. Consider what your board needs to see to govern effectively, monitor the organisation’s position and make decisions.

Once you’re clear on what the content should be, make sure that the presentation is accessible and engaging, with the right mix of numerical data and graphical representation (including traffic light and dashboard type systems) so that board members can quickly and easily grasp the numbers.

Need help?

For more information on CBB’s consulting services, please contact us via email consulting@cbb.com.au or phone 1300 284 364.


Preparing for the worst: Ensuring you have enough reserves to satisfy your liabilities

By Ron Yates, former Senior Financial Consultant

Just recently, the team at CBB were asked the question of how much money an organisation should put aside as reserves in the event of having to wind up or cease operations. These reserves need to be enough to satisfy all liabilities should this worst-case scenario arise.

Two scenarios where this may occur are a) a complete organisational shutdown, or b) a departmental shutdown. Each one has varying implications. Generally though, the areas to be considered are as follows:

  1. Income. How much will the operation lose, potentially lose, or have to put aside if it ceases operation? Can the organisation afford to lose income or ring fence closure funds in the short term and still remain solvent leading up to the shutdown date? A difficult question, especially where there may be significant activities which still need to operate and may be reliant on funding being available, versus cash being set aside for an impending closure.
  2. Operating expenses. Can the operation reduce its expenditure to a level whereby it can maintain operations up to the relevant cut off date? Another issue arises where dependency on other areas may prove difficult, and cutting back in one area may cause issues in others, particularly where crossover occurs regarding cost sharing and responsibilities.
  3. Employee payout of accruals and provisions. This is a non-negotiable amount and one that can be calculated according to individual employee contracts. It is the absolute minimum amount that an organisation needs to have put aside in its reserves and may include such things as paid out sick leave (a non recorded liability), “X” number of weeks gratuitous payment for early contract finalisation (or even contract finalisation) and a similar scenario if there is additional payment due for employees over a certain age.
  4. Status of reserves. When utilising reserves from an organisation’s usual Nett Assets, consider the impact it may have on the viability of other areas and the organisation as a whole, along with the solvency impact it may have (can it still pay its bills with what it has left?). If cash was removed from the Nett Assets position to pay for the above expenses, what impact could it have on the continuing viability of the organisation?

All are very emotive, complex and difficult situations to quantify. If an organisation is to wind up, it must have – as a minimum – sufficient cash to pay out:

  • all of point three (above)
  • accommodation expenses up to the end of its contracted lease period, as well as any “make good” amount payable for leaving a leased premise
  • all operating leases up to their termination date
  • its statutory financial commitments (e.g. BAS/Return to Work, FBT, etc.) and audit fees to enable finalisation of finance matters

The cash needed to cover all of these costs can sometimes be overpowering and very unpalatable but real, and this is a scenario which numerous organisations are finding themselves in currently.

For more information on CBB’s consulting services, please contact us via email consulting@cbb.com.au or phone 1300 284 364.


Profitable not for profits?

By Jane Arnott, General Manager, Consulting and Business Services

We recently held an ExecNet in Adelaide with the title of ‘Selling Without Selling Out’. The shift to fee for service funding – particularly in the NDIS and aged care environment – means that not for profits are having to engage with end consumers as the purchasing customer and to compete with each other for that customers’ dollar. The shift to a sales culture is hard for many as it is perceived to represent a departure from the core values of the sector. For staff working in not for profits, the reality of this change is evident all around them, but not for profit directors may have further to travel to get into a more commercial headspace.

The recently published AICD Not for Profit Governance and Performance Study: Raising the Bar revealed that many directors are still uncomfortable with the concept of their not for profit making a profit. Continue reading…