Steps to Serenity

Photo by Jake Hills on Unsplash

Problems come at us all the time and often with costs associated with them. The difference between encountering a costly problem when you are financially healthy compared to financially unstable can be drastic. For a business it can mean the difference between going under and thriving. Just ask the folks that were at Silicon Valley Bank or First Republic. I want as many organizations as possible to have the financial stability to not only weather storms, but also to be ready to take advantage of opportunities that come along. As a means of making that as simple as possible I have developed the Steps to Serenity in the hope that the non-financial experts out there will have a clear path to get their organizations in the right direction. These are intended for businesses and non-profit organizations.

I’ll say up front that I take a lot of inspiration from radio show host and author Dave Ramsey. I agree with Dave on a lot, especially as it relates to getting out of financially precarious circumstances. His class Financial Peace University has served me and my family exceedingly well. My wife and I took it as part of our pre-marital counseling and in our twelve years of marriage we have never had a money fight. Disagreements, of course, but never a fight. What more do I need to say?

I’m going to lay out the steps here and then over the next few weeks I will flesh them out individually and explain why I’ve included them and in the specific order I’ve put them in. Today I’m going to focus on step one.

The Steps to Serenity

1. Financial clean up

2. Create a plan

3. Save one payroll

4. Get out of debt

5. Save up 3-6 months of operating expenses

6. Invest profits in growth and innovation

7. Use additional profits to reward your team

Step 1 - Financial Clean Up

You might be asking why include this step at all. These steps are intended to be useful for any organization. That includes those that might be in dire straits. Hopefully that’s not you, but maybe you’re someone reading this who is getting collection calls from vendors or your line of credit is frozen. Experience has shown that in these circumstances an accounting department is either understaffed or overworked. Often both at the same time.

This may result in only the bare minimum work getting done or just “keeping the wheels on,” but other critical tasks are behind or not getting done at all. This can include bank reconciliations, reviewing outstanding receivables, cash clearing accounts ballooning, or regulatory and tax filings delayed.

Start by writing down all the “symptoms” you’re able to flag (vendor collection calls, state tax or IRS notices received, bounced checks, bank correspondence, etc.). Then take that list and review it for common themes. Are all of your problems cash flow related? Or do they all seem to relate somehow to HR? This is where you start identifying the individuals in your organization that play some part in the problem areas you’ve noted.

I’ll take a moment to say that it’s important to not assume those individuals are the source of the problems. The most likely scenario is they’re just prioritizing what they’ve been told and they’re doing the best they can. These are also the people who are the best equipped to help you start getting things cleaned back up.

Now you and your team write down the steps to get caught up as well as what additional resources are necessary. This likely means one of two things, 1) involving yourself more in this area than normal or 2) getting additional help. That may seem difficult, but take a look at where you’re at. If you’re someone who is reading this who is looking for answers to these questions then what you’ve been doing so far hasn’t really worked out has it? Getting additional help can be temporary, you can start involving other team members or outsourcing the work.

Eventually, once you are able to get caught up on filings, reconciliations, and the like, you should have a much better idea of where you stand as well as what needs to be done, such as consistently low cash balances or higher costs than realized. You also probably have some idea of how to get to a better place, perhaps raising prices or being more on top of collections from customers.

We then use the information we’ve gained from the clean up to move to Step 2 - Create a Plan. Next week we’ll talk more about what that means for your particular organization. In the meantime, if your business and your organization is financially unwell and needs guidance on how to clean up your accounting please reach out to us.