BUSINESS FORUM: Eat numbers, dream and sing transparency in 2015

04 Jan, 2015 - 00:01 0 Views
BUSINESS FORUM: Eat numbers, dream and sing transparency in 2015 Businesses should be auditable and result-oriented

The Sunday Mail

2014 has come and gone. Almost all companies had prepared budgets for 2014.

But as companies take stock of the year that was, there is need for them to assess whether they managed to achieve what they set out to achieve in the first place.

If they did, then it is well done to them, but if they didn’t, they need to ask themselves what went wrong.

Clearly, numbers speak volumes about the performance of any organisation.

Building an organisation is surely not an easy task, but if we continue analysing our numbers and improving transparency, we can build strong companies in Zimbabwe.

Some define transparency as a state by which corporate activities are viewed by outsiders while others just describe it as openness.

There were messy episodes in 2014, many of which were exposed through corruption stories that came to light.

In essence, these stories showed a dearth of corporate governance in local firms.

However, revealing such malpractices is the first step towards correcting these anomalies.

This year we need to commit ourselves to take great care in the governance of our companies.

Government, as the biggest shareholder in parastatals, has to analyse the value of its investments in these entities.

Investors always want to realise value from their investments and grow.

Regardless of challenges that we continue to face as a nation, there is need to give credit to all business leaders whose companies are still standing.

Regardless of huge debts and operational challenges, the fact that the company is still operating shows that there is something good that is being done to keep it afloat.

But still companies need to crunch more on numbers and improve on transparency.

To achieve good numbers, a lot needs to be done. The working culture has to change, our teams need to be fully engaged, compare with companies that are doing well in your particular industry and always get an explanation for an increase or decrease in numbers.

There is a challenge for all chief executive officers and finance directors of companies this year: Notwithstanding how big or small your company is, always analyse your numbers on a daily or weekly basis, depending on the volumes.

Some may be doing it already.

Study and understand the pattern, have reasons why your numbers dropped or increased. Once you run profit and loss, budgets and forecasts for a long time, it becomes second nature to you.

Start ups and new business owners out there really need to learn this.

Running numbers makes a businessperson accountable. It also helps one sleep a bit better at night. It’s simple. Money comes in. Money goes out

Everything costs money, just opening the door (rent), charging your computer (electricity) and making a coffee (coffee, milk, water and optional sugar) costs money. These are all classed as overhead costs.

There are fixed costs, direct costs and variable costs.

Overhead costs are usually fixed; direct costs are usually related to the cost of what you are selling – if there isn’t a sale, there isn’t a cost.

You need to know how much money is coming in and going out of your business, collectively with your finance team and business mentors.

Set up an accounting system to track your critical numbers, and make sure you look at them weekly.

There are a number of inexpensive cloud-based accounting programmes that you can use or sometimes a simple excel spreadsheet will suffice.

Take the time to really work out what profit you are making on your product or service. Making more profit can easily be achieved by knowing your numbers and constantly tweaking your overheads and your costs before you even think about marketing and acquisition.

Mr Ben Mclure from investopedia, a highly rated business analyst, is known for emphasising the importance of transparency in companies.

The word “transparent” can be used to describe high-quality financial statements.

The term has quickly become a part of business vocabulary.

Consider two companies with the same market capitalisation, overall market-risk exposure and financial leverage. Assume that both also have the same earnings, earnings growth rate and similar returns on capital.

The difference is that Company X is a single-business company with easy-to-understand financial statements. Company Y, by contrast, has numerous businesses and subsidiaries with complex financials. Which one will have more value?

If the odds are good, the market will value Company X more. Because of its complex and opaque financial statements, Company Y’s value will be discounted.

The reason is simple: less information means less certainty for investors. When financial statements are not transparent, investors can never be sure about a company’s real fundamentals and true risk.

For instance, a firm’s growth prospects are related to how it invests. It’s difficult, if not impossible, to evaluate a company’s investment performance if its investments are funnelled through holding companies, hiding from view.

Lack of transparency may also obscure the company’s debt level.

If a company hides its debt, investors cannot estimate their exposure to bankruptcy risk.

As we set our goals for 2015, let us remember that scrutinising numbers and improving on transparency can improve our company’s performance.

Wishing you a prosperous 2015.

 

Taurai Changwa is an Articled Accountant and ACCA finalist. He is managing director of SAFIC Consultancy. He writes in his personal capacity and can be contacted at [email protected] or visit our facebook page SAFIC Consultancy or whatsapp on 0772374784.

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