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PROPER ANALYSIS OF BUSINESS PROBLEMS

Joshua Adeyemi Oluwafemi Written by Joshua Adeyemi Oluwafemi · 1 min read >
Analyzing business problem
Proper Analysis of Business Problems

Lack of proper analysis of business problems has accounted for the failure of many promising enterprises. The failure does not always start in one quarter but over a long period of neglect. “I am not financially savvy” is no longer an excuse for any CEO as a reason why the business collapse. The boards/CEO should trust the CFO to carry out a proper analysis of the business beyond just monthly profitability. An organization could be profitable and yet treading on the way to illiquidity, and revenue could be rising at a higher rate while the earnings before tax (EBT) is negative. It is important to analyze both financial and non-financial information to help identify potential business problems.

Identifying Potential Business Problems

The Negative retaining earnings is often an accumulated monthly loss that has gone unchecked. When there is repeat loss, what is the management turnaround strategy to bring the business to a sustainable profitability? Has the cost structure been analyzed to identify non-value adding expenses? Is the interest-bearing debt so high that profitability is eroded by the interest element?

A poorly analyzed and implemented business strategy could drag a profitable business to a loss-making. The quest for growth without liquidity could lead management to take on high interest debt finance which could lead to a highly geared capital structure with its adverse effects. This strategy could bring liquidity, but the management must ensure that the return-on-investment (ROI) is higher than the interest rate. If project financing options are not well implemented, the interest burden and eventual principal repayment could crippled the business.

Providing Solutions to Identified Business Problems

The CFO, as the business partner has the responsibility to guide the board’s decision with proven data. What are the growth potentials and the cost of pursuing the growth strategy? At what point should the management discontinue operation in a loss-making subsidiary? What part of the process can be automated to reduce unnecessary manpower costs? It could be a worthwhile exercise reviewing the cost structure in OPEX, especially the first five cost centers with a higher percentage of the total overhead. Every non-value-adding expense should be identified and minimized. How can the process be streamlined to improve the quality of service deliverables to client and boost revenue? Though training comes with a cost, it promotes excellent performance. If the staff turnover among key employees is high, it would be difficult to have sustainable business growth.

Conclusion

Business executives should hold themselves responsible to ensure the business is continuously in good standing. Every business decision should be proven by well-analyzed data and other non-financial red flags. It is important to carry out analysis on regular basis with a succinct report to spot the wrong trend. A once-promising enterprise could be close down due to daily wrong decisions that were not analyzed. If management had shown commitment to review business strategies on regular basis, many failed enterprises would still be running today. The Board should be open-minded to new ideas and let members of the board express their reservations on key decisions. We can lean from Target CEO, Brian Cornel who made a brave decision to leave Canada after careful business analysis.

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