For four days in September associate professor of business at Royal Roads University and along with Richard Mimic, co-author of Business Diagnostics answered questions from business owners in a forum hosted by Douglas Magazine, Victoria`s leading business publication.
Mike and Richard have now moved the discussion and forum to Business Diagnostics. Feel free to ask Mike and Richard business development, planning, financing and `size-up` related questions in the new Questions forum.
Below is the second sampling of some of the questions and insights during the highly successful September forum. Be sure to check back for further highlights from the Douglas Magazine forum:
We are an established company and are in the fortunate position of having retained earnings on our books. My question is what are your thoughts on taking them out verses investing them in other assets.
We do like not having to use our credit lines with our healthy cash position that we are in.
Thanks for the question – the key concept here is that your company’s Retained Earnings are really derived by taking your total year end Assets (fixed + current) and deducting your Liabilities (current + fixed). So to ‘reduce’ your Retained Earnings, usually by dividends, you need to ascertain how much cash is sitting on your Balance Sheet.
If there is no offsetting cash to withdraw, then you would need to draw down on lines of credit.
Which brings us to the next issue – maintaining a reasonable balance of debt to equity on the Balance Sheet. Reducing the Retained Earnings is a depletion of your company’s equity base and would be frowned upon by your bank if you have credit facilities with them. In my experience, the sound way to build a company is to build the retained earnings year over year and take funds out by way of dividends from the current year’s earnings.
I hope this helps and the Business Insight section where there is a small side presentation that covers Bank Financing and touches on the issues of equity versus debt.
Q Hello all
A number of us have had discussions recently about the frequency of updating strategic plans for our businesses. Some suggest that once a plan is in place that minor tweaking is required while others take a contrary view and are adamant that strategic updates should be comprehensive and regularly scheduled. In light of recent economic turmoil, what does your experience say?
A My answer lies ‘somewhere in the middle’
If a comprehensive strategic plan has been crafted, the last thing you want to do is to complete a laborious update or rewrite a year later.
That said, give the exceptionally challenging and ever changing times that we are experiencing, an annual ‘tweaking’ or fine tuning exercise is not enough.
My recommendation is that an ‘annual strategic review’ be conducted by the management team, ideally at an off site location, for one day if time permits.
Five key areas should be covered:
- Present Position – using an external and internal size up process
- Strategic Direction – review and assess the present pathway and emerging alternatives
- Required Resources – internal and external
- Risks (Mitigation) – uncontrollable and controllable
- Future Success Indicators – where the organization will be in two years
This process has enough depth to be effective yet is time and resource sensitive,
If I can add one more comment here when it comes to maintaining a strategic plan, I use frequently in my consulting work the S.M.A.R.T. tool, recommended in the book you co-authored Mike: the 2nd Edition of the “Business Diagnostics” (Trafford Publishing).
So when it comes to conducting the ‘annual strategic review’ Mike was referring to in his earlier post, having Specific, Measurable, Achievable, Realistic, Time-framed articulated strategies make the review process easier to track and monitor.
Another tool I use quite frequently that has proven time and time again to be an effective tool to conduct a “quick strategic temperature check” is the Strategy Canvas by W. Chan Kim and Renée Mauborgne. The Factors of Competition used in crafting a company strategy provide a very concise picture to assess what is working and what is not.