As we swiftly approach the end of the year, it’s crucial for business owners to pause, reflect, and strategize for a strong finish to Q4. The year’s end presents a unique opportunity, not just for celebration but for introspection and planning. Here are several questions every business owner in the general and commercial contracting industry should be asking, along with potential solutions to ensure a positive year-end trajectory.
1. DO WE HAVE ENOUGH LIQUIDITY TO WEATHER ROCKY ECONOMIC TIMES?
With the cost of debt financing at a local maximum because of Federal Reserve interest rate hikes over the past several quarters, liquidity is key for any size business. You should pay close attention to the cash and cash equivalents line item on your company’s balance sheet to make sure it has the liquid resources needed to handle continued economic turmoil as well as take advantage of opportunities in the fourth quarter.
2. WHAT’S CHANGED IN OUR FINANCIAL POSITION OVER THE COURSE OF THE YEAR?
Now is the time for a close managerial accounting assessment, particularly along the lines of quarter-over-quarter analysis, variance analysis, and a stringent price-volume-mix assessment. You and your managers should have a clear understanding of the disposition of your business’ resources, its current trends, and what opportunities exist to boost revenues where possible and trim excess costs.
3. ARE THERE ANY LOOSE ENDS WITH RESPECT TO WORKING CAPITAL?
One of the most important concepts in business, working capital, becomes vitally important as the end of the fiscal year approaches. In simple terms, working capital is your business’s current assets, less its current liabilities. Current assets include resources like accounts receivable, inventory, and cash, while current liabilities include short-term liabilities such as accounts payable, wages payable, and unearned revenue.
As the holiday season approaches, businesses often find it prudent to shore up working capital by making sure that receivables are being collected in a timely manner and that payables are extended as much as possible. While counterintuitive, negative working capital can indicate that your business has achieved success in optimizing its cash conversion cycle while mitigating cash outflows.
4. WHAT ACTIONS ARE OUR COMPETITORS TAKING? DO YOU NEED TO ADJUST OUR OWN STRATEGY, OPERATIONS, AND TACTICS?
The marketplace is ever-evolving. The most successful businesses pivot and adapt. Reflect on how well you’ve adjusted to market shifts and if you could be doing more to stay ahead of the curve. Several analytical frameworks exist to help answer this question, including:
- Porter’s 5 Forces: Porter’s Five Forces is a framework developed by Michael E. Porter of Harvard Business School in 1979. The five forces in question include the threat of new entrants, supplier bargaining power, buyer bargaining power, substitution threat, and existing competition and rivalry.
- SWOT: This framework involves analyzing strengths, weaknesses, opportunities, and threats. While simpler than Porter’s framework, it still allows managers to assess the state of their business.
- PESTLE: A more nuanced framework, PESTLE involves a much broader analysis of political, economic, sociocultural, technological, legal, and environmental factors within an industry. It’s a macro framework that can complement the prior two frameworks well.
Through this analysis, you may find that your business needs to take additional steps to counter competitive pressures or to take advantage of unique market opportunities.
5. WHAT IS THE MORALE OF OUR STAFF? DO WE NEED TO EVALUATE COMPENSATION OR INCENTIVE PAYMENTS FOR THE HOLIDAY SEASON?
As a reward for their hard work, you should consider devising a compensation scheme that rewards your team members for a job well done in 2023. This is a great opportunity to evaluate bonus incentives and base salaries, especially as inflation continues to eat away at purchasing power.
PREPARE FOR Q1 2024
As your business moves into the new year, consider making use of customer and employee feedback to determine what needs to be done next. The best objectives are SMART: specific, measurable, achievable, relevant, and timely.
Additionally, this is an opportune time to develop your budgeting and financial projections for the next fiscal quarter, including the resources needed to deliver your existing products and services while growing market share and revenue.
While the U.S. Chamber of Commerce reports that nearly half of businesses have “delayed plans to grow due to higher interest rates,” by going against the grain and reinvesting in your operations, you may be able to achieve a competitive advantage in your industry.
CLOSING THOUGHT
In a tough capital-raising environment, exercising proper cost control and making optimal use of retained earnings as an internal funding source can go a long way toward ensuring your business has the framework for success needed as Q1 2024 approaches.
About the Authors:
Kyle Harris and Bart Gibson are financial advisors with UBS Financial Services Inc. a subsidiary of UBS Group AG. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the authors and may not necessarily reflect the views of UBS Financial Services Inc. If you would like to learn more about preparing your business for Q4, Kyle can be reached at kyle.harris@ubs.com and Bart can be reached at bart.gibson@ubs.com.
Modern Contractor Solutions, November 2023
Did you enjoy this article?
Subscribe to the FREE Digital Edition of Modern Contractor Solutions magazine.
