Hidden Profits Blog

There are always a certain amount of corporations that have found themselves in a situation of negative profitability and/or declining sales.  If these cases are prolonged they are in need of a fundamental business change and infusion of cash in order to survive – A Corporate Turnaround.  In the last couple of years the number of companies in this situation has increased significantly.  The common approaches to address these situations are:

1. Assemble a finance team get a cash infusion from a bank, finance company or investor
2. Assemble a team to arrange the sale of all or part of the company
3. Cut expenditures and employees across the board in the company
4. Bring in a consultant to address the revenue side of the business
5. Re-organize under bankruptcy protection

While I agree that some or all of these approaches may be necessary in any given situation, I believe that except for the cases in which the company is liquidated, Information Technology also plays a vital role.  I have been working with several clients in the last couple of years that find themselves in the situation where revenue is down, cash flow is down, cash is hard to find and the company is in serious trouble.  In one situation the client had already attempted to sell the company 3 times and was unable to come to terms with a buyer.  In another, they had already brought in management consultants to address the issues and increase sales.  In another the company was still in good position but the owner knew there were big bumps in the road and wanted to address them before they became serious.  In all cases the biggest hindrance to management was the lack of information, financial, sales and production about what was happening in the business so that productive decisions could be made.

Why was there such a lack of basic information?  In all cases the root of the problem consisted of the following:

• Computer systems which were not integrated – each company utilized a minimum of 2 major systems in the business and sometimes more
• Significant manual processes that prevented timely and accurate information from being processed in the computer systems
• Inadequate and untimely reporting regarding financial and operational results
• Lack of an adequate system to track sales performance

Because of the above Information Technology problems, the companies were unable to answer the following basic business questions:

• How much are sales down over previous years and in what product lines, customers or geographic areas?
• What sales do we have in the pipeline and what are the expected future revenues?
• Where are sales coming from in terms of products, customers and geographic regions?
• What is the productivity of operational staff and how can we increase the productivity?
• Where are the greatest expenses and what are the best cuts to make?
• What is the projected cash flow for the next month, quarter and year?
• What is the status of AR and collections, if collections are down why?

Now I know what most people would say – hire a staff of accountants to come in and generate those reports.  Ok let’s say we do that.  First, these types of reports are not static.  Management needs these reports on a daily or weekly basis.  How many accountants and how much time will be required to compile this information on an ongoing basis?  In most cases it would be unrealistic.  So what can Information Technology do?

First, there are numerous Business Intelligence (BI) systems available today that can be used to gather data from multiple systems and create reports, trend analysis, dashboards for management to have meaningful information as soon as data is entered into the systems.  This is especially important when analyzing sales and production data.  The majority of these systems can access Excel spreadsheets and any ODBC data base.  So even if there is no CRM (Customer Relationship Management) system and sales information is in spreadsheets, important management reports may be obtained from them.  Then the next question is ‘Aren’t BI systems expensive and difficult to implement?’  Traditionally that has been the case but today there are several systems that are very inexpensive and they will build a dynamic data store from the raw data.  These may not be a long term solution but can be implemented rather quickly to start providing management with critical information.

Second, in some situations the BI data can be used to create interfaces between systems that are not integrated. One of the biggest issues I see is operational systems that are not integrated with an accounting system.  Some of the BI systems can be used to capture the operational transactions and generate Excel spreadsheets of the journal entries that can then be integrated to the accounting system.

Third, I.T. is no longer just an internal data gathering operation that is used to create financial statements and tax returns.  Technology and automation are used to follow up on sales leads and prospects, survey customers, create new sales channels, provide customer and vendor self-service, provide for entry of data at the source, streamline operations and improve many other business functions.  By effectively utilizing information technology and business process automation, many time consuming and inaccurate business processes can be streamlined and made more accurate.  Much of this technology is relatively inexpensive.  For example, there are many services offered by banks, financial institutions and vendors that are free or very low cost to implement.  Many systems especially CRM (Customer Relationship Management) and prospect follow-up systems are available as a service at a low monthly cost. 

By implementing timely management reporting, integrating systems and automating business processes many companies can find solutions to their business problems, provide better information to investors and lenders and even improve the chances for an acceptable sale of the business.  Times are challenging and information technology is not a silver bullet but it is an arrow that should be in every executive’s quiver. 

For information and an evaluation of your Information Technology contact me at info@ljrconsultingservices.com or 818-709-6583