It’s easy for inefficiencies to become the norm, especially during periods of growth. During these times, it’s common to focus on growing gross revenue, which is important; however, there are many processes in your business that eventually boil that revenue down to your net revenue, which represent the true results of your efforts. Do you feel like you have a handle on all your processes, and they are operating efficiently? If the answer is “no,” then an opportunity exists for you to streamline your processes, increase profits, and get control of your business so that you can focus on the things that make you successful.
There are three steps that you can take today that will set you on the path towards process optimization:
Before process optimization begins, you need to understand and document all the processes that make your business tick. This can be accomplished by creating a procedures memo that walks through the various aspects of your business. For instance, document your accounts receivable process from the moment the sale takes place all the way to the collection of the funds. The procedures memo should document who is involved, the controls in place, the software used, and any timing expectations. It can also be helpful to put this into a flow chart if you like to see things in a visual layout.
You might be asking, “what will documenting my accounts receivable process help me achieve?” It won’t necessarily help you with your gross revenue; however, it may help you with cash flow– the lifeblood of any business. If you are able to bill efficiently and collect funds at a faster rate, you will turn receivables into cash quicker, which may decrease the borrowing on your line of credit, thus reducing interest expense and increasing your bottom line. As you start to walk through all of the various processes in your business, you will quickly recognize many cost savings opportunities just like this.
Linking Team Members with Specific Tasks
Almost equally important as identifying the processes in your business is identifying who on your team should carry out the processes that have been identified. Everyone on your team brings a different skillset to the table, and it’s important to match team members with the processes they are most proficient and passionate about. I encourage you to read an article written by a fellow team member called, Are You Getting The Right Tasks Done Each Day?, which will help you and your team identify what you do best and where your passions lie.
Now that you have identified all the processes in your business and have the right people in the right seats, it’s time to focus on optimizing those processes. Start by picking a problematic process, one that you know is a pain point. Next, analyze the process: is the process meeting the desired goal?
For instance, if you are looking at your accounts receivable process and your accounts receivable collection period is 45 days, but you want it to be closer to 30 days, does your process allow for that? Do you have the right technology in place that streamlines your accounts receivable process and makes the most of your team’s time? Are there errors in your bills that are causing the delay in payment, or is the billing process taking too long so bills are not getting to your customers timely? Once you have identified the each process’s goals and redesigned them, it’s time to implement the updated processes.
The final step is to continuously monitor the process. In the example used above, the goal was to get the accounts receivable collection period to 30 days, so reviewing this key performance indicator monthly will help ensure that your process is working and operating efficiently.
Settling for inefficient processes does not need to be the norm. Take charge of your business by identifying your processes, link processes and tasks to team members’ proficiencies and passions, and monitor processes to ensure that they remain on track and are producing the desired results. If process optimization isn’t the highest and best use of your time, consider outsourcing that task. Contact TDT to learn how we can help you with process optimization.
Dan Montgomery, CPA and Partner at TDT, discusses 3 steps to improve processes within your business. With more than twelve years of experience, Dan specializes in audits of nonprofits, governmental entities, and employee benefit plans. Dan is a member of the American Institute of Certified Public Accountants and the Iowa Society of CPAs and serves nonprofit clients across all eight TDT office locations.