Bad Grammar can Negatively Affect Your Business

“I sell stuff, not grammar.” It’s easy for many business owners to say this; playing down the importance of good grammar in business.

First impressions affect the outcomes of a variety of interpersonal encounters. In sales encounters, a prospective customer’s first impression of a salesperson affects how the prospect views both the seller’s business and his or her products. When first encounters occur through written material, bad grammar can hurt your business in many ways. Here are just five of them:

1. Lower your credibility

Using poor grammar in your presentation, discussion, papers, proposals, emails, and online content, etc., would generally lower your credibility – as perceived by the reader or listener. Poor grammar invites the reader to flag your email as spam on the first sentence. That’s because spammers, in general, are notoriously ungrammatical.

Ungrammatical content discredits you at first sight. It sends a message of sloppiness, and consequentially, a red flag to your competence and professionalism.

You want to be perceived as credible and influential? Then keep your grammatical errors at bay, or at least to the barest minimum.

2. Scare prospects away

Would you do business with someone who can’t even express himself correctly, or someone too lazy to tidy up her writing? I bet you wouldn’t.

When bad grammar lowers your credibility, prospects begin to doubt you and your ability, and then they’re too scared to do business with you. Alas, you lose them to the competition.

Proof: Research conducted by Global Lingo (https://realbusiness.co.uk/poor-grammar-on-websites-scares-59-away/) found that 59% of Britons would not use a company with poor grammar on its website.

3. Mislead prospects

Needless to say, you can pass on the wrong message to your reader by using bad grammar and misspellings. A simple blunder could change the meaning of a whole paragraph, if not the whole article.

If you’re still finding it hard to wrap your head around how bad grammar or misspellings can mislead your prospect, just consider the classic Mr. Bones, “toilet vs. to let”, situation. Imagine Bones your prospect.

4. Affect search rankings

Search engines always try to offer searchers the best results for their queries. And this includes displaying the well-written content above others in its space. Now imagine what happens to a badly written article.

While Google hasn’t expressly confirmed that it considers spelling and grammatical errors in ranking sites, other search engines like Bing have confirmed that blunders affect their content ranking. They believe if humans will find it hard to understand your content, search robots too will have a hard time with it.

In other words, you want to avoid spelling and grammatical errors on your website and in your content as much as possible.

5. Distract readers

Trust me, you don’t want readers of your messages focusing on your spelling and grammatical blunders instead of the core of those messages. That’s what bad grammar does: dilutes your message and makes the reader lose interest as the flow of your message is constantly being disturbed by your poor writing. Your content is ultimately trashed.

I have had a headache understanding the language in the User Manual of one otherwise great electrical gadget. The gadget lost its appeal to me because of the shoddiness in that guide booklet. Bad grammar generally suggests sloppiness in business practices, and this will most likely put off whoever wants to do business with you. To avoid this, always ensure your business materials look professional and are without blunders. Invest in professional editors and proofreaders if you have to. You only have one chance to make a good first impression, so make yours count. This is where I come in. At a nominal fee, I can edit and proofread your product manuals, brochures, circulars, emails and so on.

Contact me:

Caleb Mutsumba
Business Consultant
Mobile / WhatsApp: +263 712 620287. +263 772 466540
Skype: caleb.mutsumba
LinkedIn:- http://zw.linkedin.com/in/calebmutsumba
Blog: – https://5whaudit.wordpress.com/
Twitter:- @Caleb_Mutsumba
Web:- https://5wh.co.zw/
Email:- caleb@5wh.co.zw

Professional Examinations and Past Examination Papers

Past exam papers were a gist of the course when I was studying for my professional examinations. The papers and corresponding examiners’ comments were bound into booklets, which were quite popular. The professional body must have been making roaring business out of them. Besides the possibility of “spotting” the likely examination questions, the papers helped us discern the mind of the examiner, as it were. Furthermore, some of the examiners’ comments made exhilarating reading.

Sign that reads “Exam Room” from a doctors office.

Talking about excitement, here is one such snippet. The question was: “You are the Secretary of a public company. You have been informed that the company is going to go into voluntary liquidation. What steps do you take?” (20 marks). According to the examiner, one candidate submitted the following answer: “I update my CV and start looking for another job”. I would have loved to get 20 marks out of this cute answer!

Still in this fun mood, I wish to thank those college and professional students in Forensic Accounting and related disciplines who have approached me online (and offline) with requests for examination preparations. Besides earning me a little income, the questions have had the effect of keeping me sharp and up-to-date on my professional career. Consequently, any prospective examination candidate in the following areas of my expertise can contact me for advice and assistance:
 Forensic Accounting
 Forensic Audit
 Internal Audit
 Financial and Management Accounting
 Business and Transaction Advisory Services
 Project and General Management
 Company Secretarial/Administration Services
 Due diligence Investigation
 Fraud Investigation, Detection and Prevention programmes

My name is Caleb Mutsumba. You can reach me on:
 Whatsapp: +263712620287 (business) or +263772466540 (personal)
 Email: caleb@5wh.co.zw (business) or calebmutsumba@gmail.com (personal).
 Website: https://5wh.co.zw/

Here is wishing all the best in your exams and please do stay safe, even after COVID-19.
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Eight Steps to An Effective Dunning Campaign

Welcome to 2020 everyone.

Before I share this, my first post of the year, let me, as a Forensic Audit Consultant, share with you what I got from a friend recently. It goes like this: “While writing a date on any document in this year of our Lord 2020, we should write it in its full format, e.g. 31/01/2020 and not as 31/01/20. That’s because a nefarious person can change it to 31/01/2011 or 31/01/2019 or any year in between. That can render the document invalid. Fraud is close too.”

Now to the post which comes to us thanks to our friends at Tesorio blog.

Eight Steps to An Effective Dunning Campaign

Accounts Receivable

KOBEN WILLIAMS
MAY 10, 2019

If you sell to customers on credit, you are probably already using dunning letters. These are simple notes that tell a customer “Hey, you’re overdue. Can you please pay us?” You can send a dunning letter via email or as a paper letter. Sounds simple? Actually, no. To write an effective dunning letter requires great attention to detail and often creativity. The best collections teams are constantly testing dunning campaigns and making changes to try to improve them, and they are measuring their results. While this may require more upfront time and thought, taking a more detailed and creative approach to dunning should yield significant dividends from better response rates to your dunning campaign. Here’s a quick guide to writing a rockstar dunning letter.

Determine Your Dunning Campaign Metrics
What do you want to measure to see how well your dunning campaign is working? This is a key consideration because it allows you to use data to judge your results and compare different campaigns against each other. Some basic metrics you might consider include email open rate, email response rates (meaning, they replied), clicks on links in an email (if you have sent them a payment link, ideally), and percentage of recipients who pay within 30 days or 60 days. Also, receiving your letter as well as the percentage of total invoices paid by recipients who do pay. For paper dunning campaigns, the metrics are more simple; did the customer pay? Often a company will send both, and that’s normal. Yes, the ultimate bottom line is simple: how much cash does your campaign collect? But studying these other metrics might give you directional guidance. For example, if your email open rate is better for one campaign than another, this likely indicates better payment rates and probably indicates better recipient engagement. So you may want to look at how the more successful campaign was different to apply those insights to improve other campaigns.

Email, Paper or Both?
Certainly, email is more convenient. It also allows the inclusion of links to payment options. Email is also easier to track and follow up on. That said, sometimes paper still cuts through the noise and grabs someone’s attention. It feels more serious. We wouldn’t recommend paper as a primary means of sending dunning notices, but you may want to consider sending them alongside emails for greater effect. If so, definitely refer back to the email in the letter in order to guide the recipient to quicker action. (In fact, consider that your dunning email may have been screened as spam or deposited in a low-priority inbox, a common occurrence with Google Mail).

Test the Subject Line and Copy
This goes back to the discussion above about metrics. Dunning campaigns are actually just another type of email marketing. Email marketers have long known that the subject line of their messages can strongly influence the likelihood of recipients to open that email. If you are sending a high volume of dunning emails, then it’s definitely worth your time to test different subject lines. (This is called A/B testing.) The basic rule of thumb in A/B testing is simple. Never test more than two subject lines at a given time in order to make sure you know the true impact of each change. What applies to subject lines also applies to copy in the dunning letters. Try two different versions of a letter to customers in the same segment (meaning size or days overdue or geography). (Here is a link to a good beginner article on A/B testing).

Adopt the Right Tone
Obviously, collecting money is serious business. However, bone dry or threatening dunning letters may perform worse than a dunning letter with a gentle touch or even a little bit of humor. You don’t know what’s going on inside the company; there could be major problems and a lot of stress. The accounts payable team may be under tremendous pressure. While that’s not your problem, you want to treat them with empathy. So for the first letter in a dunning campaign, consider a conciliatory and relaxed tone. For subsequent letters, you may want to adopt a more serious tone with specified negative consequences (i.e. a service cut off or submission to a collections agency) laid out very clearly. To make it clear that matters are growing more serious with each letter, you probably don’t want to use the exact same dunning letter copy for the first, second and third notices. Additionally, there may be cultural nuances for customers in different geographies or from different countries and industry sectors. So factor all of these into the tone and where you are in the collection cycle. If you are very unsure of how to write a good collections letter, you can have an attorney do it for you (or even post it on a legal site like UpCounsel where an attorney can write one for a relatively small fee).

Make It Personal (If You Can)
There is a reason why sales teams increasingly adopt tools that allow for brief personalized notes on outreach emails. Personalization works. It shows the recipient of a dunning email that you have taken the time to acknowledge them as a person. Granted, dunning and collection letters are not the happiest communication but the purpose is very similar to that of a sales email; you are trying to close the invoice, rather than the sale. Personalization is not always possible. For example, if there is high turnover at the debtor company or if all invoices and notices go through a centralized email box, personalization can be challenging. And you probably don’t want to put a personalized subject line because it may appear unprofessional in such a serious situation. But if, for instance, you have a personal contact at the customer company, even a brief mention can humanize the interaction and reframe the request as coming from one person to another. Manual personalization of dunning letters can be very time consuming so you may want to consider using a system that can automate some of the personalization or allow you to quickly add a note to the body of an otherwise standardized letter. In this same vein, if at all possible, make the dunning email come from a personal email (joe@company.com) rather than a system email address (ar@company.com). Personal emails are more likely to be read and less likely to get filtered as Spam.

Make It (Ridiculously) Easy to Pay
This sounds silly but including a link to direct payment options will radically increase the chances that you will get paid quickly. The link should take them to a payment gateway that can ideally handle credit card, ACH/EFT, and Wires. Make it stupid simple for the recipient to pay their debt. For that payment link, as well, make sure that you are sending a secure (https://) domain. With the rise in spearfishing and email fraud targeting company AP departments, it’s important to make the paying feel as secure as possible.

Speed Up the Cadence
Many companies have a practice in collections and accounts receivable management that is to send out the first collections notice when a customer is 15 to 30 days late in paying their invoice. This may be too long to wait. A good amount of research has found that the earlier you notify customers they are late, the more likely you are to get paid. In fact, as often as not, late payment isn’t a conscious decision but an oversight or a reflection of your low priority in the bulging queue of an overworked accounts payable team. With that in mind, you may want to send the first note even if the invoice is a week or even a few days late. Consider, as well, the size of the customer and past customer payment behavior. If a customer pays 30 days late like clockwork, then it may not be worth the effort to accelerate their payment because you are encountering an internal policy of 30 days late payment. (You might be able to learn this information from a quick conversation with your AP team counterpart).

Consider Whether Advanced Dunning Automation Tools Makes Sense
Most of the ERP systems, such as NetSuite, have some automated dunning campaign features. That said, collections teams may want to consider third-party solutions that give greater flexibility and control over dunning. For example, running campaign tests in many ERP dunning systems is not possible, and creating multiple templates is time-consuming and challenging. If your dunning ERP’s default automation system is boxing you in and is hard to use, you may want to consider shopping around for a collections automation product that has modern software features like team assignments, bulk actions, and multiple-templates. Dunning automation tools can also help you ensure that your emails are actually delivered: just like email marketing, blasting out 1,000 dunning emails in a short span of time will trigger Spam filters and significantly reduce the likelihood that your emails are received, let alone read. Recovering from a Spam catastrophe like this can be painful and require weeks of time working with IT teams. So consider the risk you may be taking before you push send.

Conclusion
After reading this, we hope you will have some ideas on how to think about building out a detailed and effective collections campaign structure. Most of what we talk about here can be turned into a repeatable process that your collections team and accounts receivable managers and analysts can fine tune and revise to improve results. You may want to revisit your process and look at the data a quarter or six months after you first implement. You should see positive results that will convert into improved metrics for Days Sales Outstanding, Average Days Delinquent, and Free Cash Flow.

KOBEN WILLIAMS
MAY 10, 2019
Koben is the Head of Customer Operations at Tesorio.

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How to Tell If Someone Is Lying

How to Tell If Someone Is Lying

Most people lie from time to time. Some of these lies are little white lies intended to protect someone else’s feelings (“No, that shirt does not make you look fat!”). In other cases, these lies can be much more serious (like lying on a CV) or even sinister (covering up a crime).

People also like to believe that they are pretty good at detecting lies and folk wisdom suggests a wide variety of ways to root out dishonesty. Some of the most common: Liars tend to fidget and squirm. They won’t look you in the eye. They have shifty eyes when they are telling a lie. Research suggests that most of these notions are simply old wives tales.

Clearly, behavioral differences between honest and lying individuals are difficult to discriminate and measure. Many studies have shown that even trained investigators are remarkably poor at telling if someone is lying or telling the truth.

Several studies have shown that while individual signals and behaviors are useful indicators of deception, some of the ones most often linked to lying (such as eye movements) are among the worst predictors. So while body language can be a useful tool in the detection of lies, the key is to understand which signals to pay attention to.

Psychologists have also utilized research of body language and deception to help members of law enforcement distinguish between the truth and lies. Researchers at UCLA conducted studies on the subject in addition to analyzing 60 studies on deception in order to develop recommendations and training for law enforcement. The results of their research were published in the April 2016 issue of the American Journal of Forensic Psychiatry.

Here is what body language can (and cannot) tell you on how to actively root out lies, and why you should trust your instincts. A few of the potential red flags the researchers identified that might indicate that people are deceptive include:
• Being vague; offering few details
• Repeating questions before answering them
• Speaking in sentence fragments
• Failing to provide specific details when a story is challenged
• Grooming behaviors such as playing with hair or pressing fingers to lips

Lead researcher R. Edward Geiselman suggests that while detecting deception is never easy, quality training can improve a person’s ability to detect lies. “Without training, many people think they can detect deception, but their perceptions are unrelated to their actual ability. Quick, inadequate training sessions lead people to over-analyze and to do worse than if they go with their gut reactions.”

Research has also shown that people do tend to pay attention to many of the correct behavioral cues associated with deception. A 2001 meta-analysis by researchers Hartwig and Bond found that while people do rely on valid cues for detecting lies, the problem might lie with the weakness of these cues as deception indicators in the first place.

Some of the most accurate deception cues that people do pay attention to include:
• Being vague: If the speaker seems to intentionally leave out important details, it might be because they are lying.
• Vocal uncertainty: If the person seems unsure or insecure, they are more likely to be perceived as lying.
• Indifference: Shrugging, lack of expression, and a bored posture can be signs of lying since the person is trying to avoid conveying emotions and possible tells.
• Overthinking: If the individual seems to be thinking too hard to fill in the details of the story, it might be because they are deceiving you.

The lesson here is that while body language may be helpful, it is important to pay attention to the right signals. Experts suggest that relying too heavily on such signals may impair the ability to detect lies. Next, learn more about a more active approach to figuring out if someone is telling the truth.

Ask Them to Tell Their Story in Reverse

Lie detection is often seen as a passive process. People often assume that they can just observe the potential liar’s body language and facial expressions to spot obvious “tells.” While research has shown that this is a pretty bad way to detect lies, taking a more active approach to uncovering lies can yield better results.

Increasing the Mental Load Makes Lying More Difficult

Research suggests that asking people to report their stories in reverse order rather than chronological order can increase the accuracy of lie detection. The researchers suggest that the verbal and non-verbal cues that distinguish between lying and truth-telling become more apparent as cognitive load increases. In other words, lying is more mentally taxing than telling the truth. If you add even more cognitive complexity, behavioral cues may become more apparent.

Not only is telling a lie more cognitively demanding, but liars typically exert much more mental energy toward monitoring their behaviors and evaluating the responses of others. They are concerned with their credibility and ensuring that other people believe their stories. All this takes a considerable amount of effort, so if you throw in a difficult task (like relating their story in reverse order), cracks in the story and behavior tells might become easier to spot.

Finally, what’s the best way to spot a liar? The reality is that there is no universal, sure-fire sign that someone is lying. All of the signs, behaviors, and indicators that researchers have linked to lying are simply clues that might reveal whether a person is being forthright.

So the next time you are trying to gauge the veracity of an individual’s story, stop looking at the clichéd “lying signs” and learn how to spot more subtle behaviors that might be linked to deception. When necessary, take a more active approach by adding pressure and make telling the lie more mentally taxing by asking the speaker to relate the story in reverse order.

Finally, and perhaps most importantly, trust your instincts. You might have a great intuitive sense of honesty versus dishonesty, you just need to learn to heed those gut feelings.

Credit: www.verywell.com
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The Art of Thinking Clearly

The Art of Thinking Clearly by Rolf Dobelli

I will be serially doing abstracts of the marvelous Rolf Dobelli’s book, The Art of Thinking Clearly. I enjoyed the book. I ‘ll do a chapter at a time. I enjoyed the book. I ‘ll do a chapter at a time.

Chapter 1

WHY YOU SHOULD VISIT CEMETERIES: Survivorship Bias

In daily life, because triumph is made more visible than failure, we systematically overestimate our chances of succeeding. As an outsider, we succumb to an illusion, and we overlook how minuscule the probability of success really is. We are victims of Survivorship Bias, which simply means this: people systematically overestimate their chances of success.

We should guard against it by frequently visiting the graves of once-promising projects, investments, and careers. It is a sad walk, but one that should clear one’s mind.

Cash is Queen: Why Cash flow Matters

Cash is Queen: Why Cash flow Matters

In many of his works, the late great Peter Drucker posits that cash flow does matter more than profits. I tend to agree – to a certain extent. In this post, I want to show how cash flow can be more significant than profits, in some circumstances.

“It doesn’t matter how great your business model is, how profitable you are, or how many investors you have lined up,” wrote a contributor to The Platinum Wealth Newswire recently, “you won’t survive if you can’t manage your company’s cash.”

One can hardly argue with the above statement. In fact, a Google search of “What causes small businesses to fail” returns over a million results, the first ten of which are agreed on:

• Insufficient capital (money)
• Lack of experience.
• Poor location.
• Poor inventory management.
• Over-investment in fixed assets.
• Poor credit arrangements.
• Personal use of business funds.
• Unexpected growth.

In most instances, lack of capital is almost always at the top. This is what Investopedia has to say about the phenomenon:

“Of the vast number of small businesses that fail each year, nearly half of the entrepreneurs state a lack of funding or working capital is to blame. In most instances, a business owner is intimately aware of how much money is needed to keep operations running on a day-to-day basis, including funding payroll; paying fixed and varied overhead expenses such as rent and utilities; and ensuring outside vendors are paid on time. However, owners of failing companies are less in tune with how much revenue is generated by sales of products or services. This disconnect leads to funding shortfalls that quickly put a small business out of operation.”

Indeed, once you compound the lack of cash with its poor management the pitfall grows considerably. Some studies found that up to 80% of businesses fail due to poor cash flow management skills.

We do, however, have to bear in mind that both cash flow and profits are crucial aspects of a business. For a business to be successful in the long term, it needs to generate profits while also operating with positive cash flow. I emphasise “long-term” because time frames are of the essence here. Let us, in broad language, define the terms:

Cash Flow
Cash flow is the inflow and outflow of money from a business. It is necessary for daily operations, taxes, purchasing inventory, and paying employees and operating costs. Cash includes cash equivalents.

Profit
Profit is the surplus after all expenses are deducted from revenue. Profit is the overall picture of a business and the basis on which tax is calculated.

Cash flow is not the same as profitability. A profitable business can still be unable to pay its bills. Similarly, just because a business is meeting all of its financial obligations, doesn’t mean it’s profitable. Profit is an accounting term, which really only exists on paper. Measuring profit is a very specific way of looking at a business. It doesn’t tell you a whole lot about how the business is getting by day-to-day.

Which One is More Important

It follows, therefore, that when determining which one is more important, it depends on the business and the circumstances. For example, a business may see a profit every month, but its money is tied up in hard assets or accounts receivable (debtors), and there is no cash to pay employees. Once a debt is paid or the business sees an influx of revenue, it starts to see positive cash flow again. In this example, cash flow is more important because it keeps the business running while still maintaining a profit. Alternately, a business may see increased revenue and cash flow, but there is a substantial amount of debt (with the attendant debt servicing burden) so the business does not make a profit.

The absence of a profit eventually has a declining effect on the cash flow. In this instance, a profit is more important. Another thing to remember when determining whether to focus on cash flow or profit is cash flow can be bought. A business owner can put up his or her personal assets as capital into the business or get a small business loan from a bank to keep the business running until it starts seeing cash flow again. The same cannot be said about profit.

For us to answer the question of which one is more important we have to, at this point, bring in the concept of the business life cycle. Let us turn over to the diagram below.

The business life cycle usually includes its birth or incorporation stage, its initial growth stage, its expansion stage as it becomes more widely known and moves into new markets, its mature operation stage, and its eventual decline as consumer interest in its products wane and key employees depart. At this stage, it will either re-invent itself or die.

According to the JP Morgan Institute, roughly a third of new businesses exit (or die) within their first two years; and half exit within their first five years. We have already looked at the leading causes of small businesses death.

Established businesses often have a buffer of extra cash to get them through shortfalls. Growing businesses often don’t because they are always reinvesting. Years with the biggest growth—including the first few years—are also the most challenging when it comes to cash flow. This is one of the reasons it’s so hard to get a new business off the ground. This is the stage when cash is king and getting good at managing cash flow is one of the best things you can do for your business.

Since the majority of businesses do not exist beyond six years, it is, therefore, safe to surmise that the majority of businesses in any economy are small businesses. Most of these will be in the startup or incorporation, initial growth, and expansion stages. As we have seen, these are the stages when cash flow management is paramount. In a nutshell, your business may be healthy, have a great profit margin, and your staff may be motivated and great at their jobs. But if you don’t have cash at the right time to pay for your operations and your debts, you may be in trouble.

The Zimbabwe Situation

In a 2016 interview with Standard Business, Confederation of Zimbabwe Industries (CZI) president, Mr Busisa Moyo said the manufacturing and commercial sectors were low on inventories because foreign suppliers were cutting back on raw material delivery to Zimbabwe and in some cases taking legal action as local companies failed to pay for supplies due to the prevailing cash crisis in the country.

In 2017, a KPMG poll found that cash challenges have had a significant impact on Zimbabwean businesses. That was when, according to the Reserve Bank of Zimbabwe, cash circulation in the formal sector had reduced to 1.4% of total deposits in the banking sector. During KPMG’s Audit Committee Forum held in July 2017, a quick poll of more than 100 business executives was conducted. Seventy-six percent of the participants said their businesses had experienced a significant negative impact as a result of cash shortages.

Zimbabwe relies on imports as the country’s manufacturing sector is not producing much due to lack of working capital, high production costs, low capacity utilisation levels as well as obsolete equipment. Between 2009 and 2016 Zimbabwe imported products worth over $20 billion.

What this all amount to is that if cash was king in general, in Zimbabwe it is an all-powerful emperor.

General Causes of Cash flow problems

I want to categorize the sources of cash flow problems into four categories as shown in the diagram below; namely, economic conditions within the country, lack of cash flow management know-how, errors and fraud within the cash flow channel.

Of these four categories, one is exogenous (caused by factors outside the organism, organisation or system) while the other three are endogenous (caused by factors inside the organism, organisation or system). While there is little that an entrepreneur can do to end cash shortages within the economy, there is a lot that one can do to mitigate their effects. The endogenous factors, on the other hand, are squarely within the purview of every businessperson – these are the essence of entrepreneurship.

Let us look at each of these categories in turn.

1. Economic Conditions

All the measures that a business person can take to address internal cash flow problems will go a long way in mitigating the effects of the liquidity challenges within the economy. This would include the use of non-traditional transacting systems such as barter exchange.

2. Lack of Knowledge
“My people are destroyed for lack of knowledge. Because you have rejected knowledge, I also reject you as my priests; because you have ignored the law of your God, I also will ignore your children.” Hosea 4:6

Need I say more? Save to add that a flagrant lack of knowledge in some instances is akin to actively rejecting it! There are many ways one can avail himself or herself of knowledge. Here are just but a few – online courses, business coaching clinics and business classes. Learning does not end when one leaves school.

Here are some of the major causes of cash flow problems arising out of poor cash flow management skills.

i. Declining Sales and/or Declining Gross Profit Margins

a) Declining Sales

  • Declining sales have a devastating effect on your cash flow as a relatively small decline can cause a massive reduction in your profitability (remember profit feeds cash and vice versa).
  • This typically occurs when economic conditions deteriorate, there is an increase in competition from global competitors, new competitors enter your market or your industry declines.
  • As sales decline, your overheads will probably remain unchanged so net profit decreases rapidly.
  • The table below vividly demonstrates the devastating effect of declining sales.

The table shows the disconcerting feature of a 20% decline in sales inviting a whopping 140% fall in net profit, i.e. a net loss of $2.

b) Declining Gross Profit Margins

  • Declining gross profit margins have a devastating effect on your cash flow as a relatively small decline can cause a massive reduction in your profitability.
  • Typically occurs when there is pressure on sales.

ii. Your Business Is Unprofitable

  • Simply put, you are spending more than you are charging to provide your customers with goods or services. For example, for every $1,000 you charge your customer you are spending $1,050! That is for every $1,000,000 you earn you are spending $1,050,000!
  • Inevitably your losses will accumulate to the point of having to borrow more money just to stay in business. But eventually you will come to the point where it is neither wise nor possible to borrow more money and you will have to sell your business, close it down, liquidate it, or someone else will liquidate it for you, for example, creditors.
  • A much better solution is to take immediate action to restructure your business to generate strong and sustainable profits; this will probably require a very experienced business turnaround specialist to guide you through this process.

Main causes of lack of profitability include:

  • A flawed business model.
  • An underperforming business; your sales & marketing and/or operations are not working like clockwork.
  • Lack of understanding of financial statements.
  • Lack of accurate and timely financial statements.
  • Lack of familiarity with KPI’s (Key Performance Indicators) and strict monitoring of them
  • Low gross profit margins due to high direct costs and/or not charging enough for your products/services and/or extreme competitive industry pressures.
  • Poor performance and lack of productivity of staff.
  • Poor processes, many errors/defects.
  • Poor stock purchasing and management.
  • Excessive overheads.
  • Excessive interest and/or vehicle and equipment (fixed assets) finance commitments.
  • Poor credit approval of customers and poor debtor collection management practices resulting in high bad debts experience.
  • Undisciplined spending.

iii. You Have a Natural Negative Cash Flow Business Model: Examples include:

  • You sell on credit terms, 30, 60, or even 90-day terms, but you have to pay your payroll, rent, overheads, etc. weeks, if not months before you are paid by your customers. And your payment terms with your suppliers are shorter than the payment terms you have given your customers.
  • You carry imported stock which you have paid for weeks or months before it lands in your warehouse.
  • You are paid by way of progress claims for which you also provide credit so you receive payment long after you have paid your direct factory expenses or subcontractors and materials expenses. Furthermore, retention payments are withheld by your head contractors or by your customers.

There are ways to address every one of these circumstances which involve redesigning your business model and also using appropriate means of financing, many of which are still available, even if you are already in financial distress.

iv. Excessive Debt and Capital Expenditure and/or Excessive Personal Drawings/Benefits

  • High repayments due to excessive debt and/or repayment of loans over too short a period. This especially applies to vehicle and equipment loans and lease repayments which are typically structured over relatively short terms with low or nil balloon or residual values.
  • Capital expenditure funded out of cash flow instead of being financed over the useful life of the asset, which puts pressure on cash flow.
  • Funding purchase of personal property, assets or the repayments on these properties far beyond the capacity of your business to sustain these payments as well as meeting the ongoing payment of all business expenses within normal trading terms, including taxes and superannuation (pension fund).
  • Excessive living and lifestyle expenses.

v. Poor Stock or Poor Credit and Debtor Management

  • Poor stock management, such as carrying stock that doesn’t sell through, carrying excessive levels of stock, not clearing discontinued or obsolete stock, poor demand planning, undisciplined purchasing habits, or a poor stock management system to name a few.
  • Poor credit management, that is no or poor credit approval processes before providing customers with credit which will sooner or later result in bad debt write-offs and in the worst cases will result in failure of the business.
  • Poor debtor management which includes lack of disciplined collection of debts due by customers, allowing continued credit when customers have not paid their bills within company credit terms, and lack of regular reconciling of debtors accounts.

3. Fraud and Error within the Cash flow Channel

“To err is human”. The ancillary of this quote from Alexander Pope goes “to forgive, divine.” Unfortunately, fraudsters and cash flow errors are not in the business of forgiving! Whereas error is an unintentional blunder, fraud, on the other hand, is a well thought out plan to steal and deceive. We use the term “fraud” as a generic term which includes all surprise, trick, thievery, cunning and unfair ways by which another is cheated. The question then is, if all people tend to make mistakes (when they are under stress, pressure, unwell, inattentive, etc.), while some tend to be dishonest, what do we do about it? The answer is, of cause, internal controls. In any organisation, the cost of internal control and compliance with financial, accounting as well as regulatory requirements is a necessary cost of operation. An appropriate system of internal control should neither be costly nor onerous.

The main internal control principles include:

  • Establish responsibilities. Every staff member should know what they are supposed to do; tasks do not have to slip between two people.
  • Maintain adequate records. This includes a complete set of accounting records as well as those required by law and regulations.
  • A comprehensive company policies and procedures manual covering all departments within your organization will become your “bible” for the company. A relevant facet of the manual is the Code of Ethics, incorporating a ‘Fraud Ethics Policy which will incorporate:

o The process and methodology for performing ‘Fraud Vulnerability Reviews’;
o The development and roll-out of a ‘Fraud Response Plan’, including the implementation of a ‘Whistle Blower’ fraud reporting facility;
o The roll-out of a Fraud Awareness program for all staff;
o The process of performing regular fraud detection reviews, thereby limiting your exposure to fraud losses.

  • Segregation of duties. This is indispensable in a system of internal control. The rationale for segregation of duties is that the work of one employee should, without a duplication of effort, provide a reliable basis for evaluating the work of another employee. There are two common applications of this principle:
    a. The responsibility for related activities should be assigned to different individuals.
    b. The responsibility for record keeping for an asset should be separate from the physical custody of an asset.
  • Screening and employee rotation. Procedures for the hiring of new employees should not be left to chance. Proper background checks should be done. Wherever possible and appropriate, employees should change jobs within the organisation as a matter of policy. Many fraud schemes are detected this way.
  • Use technological controls. By eliminating the use of paper-based processes and limiting human interface in transactions, computers can aid internal control. However, there should be general and application controls around the technology itself. One of the first steps that we would take to design or improve internal control in small business is to ensure that each team member has access only to the applications and data needed to carry out their job responsibilities. Starting with the computer and network, ensure that each person has a unique username and password that is used to log on each day.
  • Perform regular independent reviews. This is a primary management responsibility: Watching over the shoulders of subordinates is not necessarily eavesdropping.
  • Insure assets by bonding key employees. Consider agreements (such as a fidelity bond) under which a bonding or insurance company guarantees payment of a specified sum as damages, in the event one or more of the employees covered in the bond cause financial loss to the insured employer. Se my previous post on fidelity bond here.

Summary

Profit is of course what most people are in business for. It’s an easy measure of ‘success’, and without profits, it would be impossible to secure finance, attract investors, or grow operations. However, in order to achieve this profit in the first place, businesses must first align the timing of their cash used, with the timing of their cash received. That is, they need to shore up a steady cash flow.

However, the profit trap can be an easy one for anyone to fall into. Below are three reasons it can pay to spend less time focusing on your bottom line and more on observing and shoring up steady cash flow.

1. Focusing on cash flow can highlight operational issues

Movements in cash flow can sometimes indicate operational, as opposed to sales-related, issues. As an example, what may appear to be a quiet month revenue-wise might actually be a large number of clients neglecting to pay on time. Those same clients may all decide to pay at once in the following month, making it appear that revenue is back on track when in actual fact it’s just that your cash flow is out of balance. In this case, these cash flow movements highlight a need to implement systems that ensure more steady payments from clients.

2. Growth becomes more manageable

Growth should be the Holy Grail for most business owners. Expanding your offering’s reach through investment in new locations, R&D, or new staff can all help to boost future profits. And if you are able to understand what your net cash position is, you will be better positioned to make more informed decisions to grow your business. Decisions on factors such as staffing, office space, leases, and even business structure all become far clearer with a clear understanding of your business’s cash flow.

3. Debt becomes cheaper and easier to manage

Your business may be healthy, have a great profit margin, and your staff may be motivated and great at their jobs. But if you don’t have cash at the right time to pay your debts, you may be in trouble.
Debt obviously becomes more expensive if you’re unable to pay on time, with late fees and overdrafts adding up. This can also cause unnecessary stress for the business owner. But with steady cash flow, a business manager can plan for debt repayments, and make better decisions regarding how much debt to take on.

Finally, remember to safeguard your hard earned cash: The cost of internal control and compliance with financial, accounting as well as regulatory requirements is a necessary cost of doing business.


Caleb address

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Reference
https://business.google.com/dashboard/l/14873898238558312677
https://platinumwealth.co.za/insights/business/cash-is-king-why-cash-flow-matters-more-than-profits/
https://www.jpmorganchase.com/corporate/institute/small-business-longevity.htm
http://www.businessturnaround.net.au/the-5-main-causes-of-cash-flow-problems
https://www.accountantsdaily.com.au/columns/9285-why-cash-flow-can-be-more-important-than-profit
https://5whaudit.wordpress.com/2011/10/17/what-is-fidelity-guarantee-insurance/

© Caleb Mutsumba

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When feelings are aroused, research shows that the logical parts of our brain are suppressed

When feelings are aroused, research shows that the logical parts of our brain are suppressed. The stronger we feel, the weaker we think.

In my several years as a Forensic Auditor investigating fraud and all manner of malfeasance and bad faith at work, I have had to work with both the law and the justice delivery system (dictionary definition of forensic is “of or to do with the law courts”). Whereas the law is an ass, our justice delivery system deserves another Dickens to express it.

Long story short, when there is a fraud at work the employer is caught between Labour laws and the suspect’s lawyers; the employer can be forgiven for feeling like the malefactor.

This is the time you need a steady hand to guide you through the labyrinth. You have to get it right from the beginning.

The Practical Aspects of the Fight against Corruption

The fight against corruption is indeed a cardinal one for any society. Corruption at any level and by any other name is undeniably corrosive. It is the trademark of any retrogressive society. Every sane person knows it. That is why every leader, even those who seem to benefit from it, condemn it by day, even as they condone it by night. In 2015 then President Mugabe pronounced “zero tolerance to the scourge of corruption” even as Zimbabwe continued its descent on the global corruption scale. Today, similar declarations abound.

How do we tell the difference? How do we tell the real fight from the adulterated; reality from fake? Though the tune and the dance seem different from those of yesteryear, can the man in the street know for certain that now is the era of belling the cat? What’s the benchmark? After all, the picture for ages has been something like this:

Namely, the arrest of some political figure followed by a less dramatic acquittal, typically after a long time of an on-and-off-and-on-again appearance at this and that Court. This has had the regrettable result of the public having to question the bona fides of the allegations.

In practical terms, what is the fight against corruption? What does it entail? Talking about the establishment of special Corruption Courts, Justice, Legal and Parliamentary Affairs Minister Ziyambi Ziyambi said the courts would have no sacred cows. “We are going down to the roots of corruption,” he said. “No stone will be left unturned; even the so-called big fish who sometimes get away with corruption will be pursued. Further, these courts will ensure all corruption cases are dealt with expeditiously. There will be a united effort (my emphasis) among the NPA, JSC, Attorney-General’s Office, Zimbabwe Anti-Corruption Commission and police; and crack teams will be assembled where necessary.” (The Herald. 5 February 2018)

Needless to say, the fight against corruption is both proactive (preventative) and reactive. While the former is quiet and more effective, the latter is noisy, complex and costly. In the same Herald article, Zimbabwe Law Society president Mr Misheck Hogwe said that “It should be understood that corruption is one of the most complex crimes and needs a systematic approach” Indeed it should.

I did ask what the benchmark was. Let us have my take on that. To me it is the implementation of the last in the minister’s above sentences: a bona fide united front in this fashion:

While public debates of allegations, arrests, prosecutions and outcomes make all sorts of headlines and get official attention as well as funding, investigations only whimper in the background. Yet it goes without saying that successful outcomes are a result of resourceful investigations and astute prosecutorial work. On the same token, the allegation from which all this chain of events arises has to be well-founded. Let us look at each of these events in turn.

Allegation

What is the test criterion of a well-founded allegation? The long and short answer to this is that it should be free of malice. Whether the allegation is raised out of mere suspicion of wrongdoing, it should be well-founded, sound, logical and substantiated. This places the onus of evaluating a suspicion on the person raising the allegation. Many unsubstantiated allegations of corruption have found their way into the justice system, to the detriment of the integrity of the system.

Investigation

An investigation is an exercise to establish the truth. An investigation cannot create a case out of no case. Perpetrators of fraud and corruption will go to great length to conceal their crimes. It is the responsibility of the investigation to establish, not only the what, where, when, how and the who, but also ascertain the evidence thereof. Corruption is indeed a complex crime and it calls for an equally multifaceted investigative approach. This calls for directing attention to what is good and useful for uncovering the evidence and ignoring the rest.

The term “public-private partnership” has become quite popular in our political discourse. In this country, however, the practice has yet to find traction in the field of criminal investigations. In many countries the practice is a matter of cause. Modern fraud investigations will encompass a wide range of disciplines, including computer forensics, data/digital/ financial analytics, social mapping and so on. Experts in these investigative disciplines may not be found in the public sector. Many, if not most, are in private organisations and universities. Public-private partnership is therefore critical for successful outcomes.

Prosecution

In public discourse, prosecution is most often taken to be the low hanging fruit. It is where the most heat and noise come from. When the outcome is an acquittal it is the prosecution which often gets the rap. But, from what we have looked at above, the slap may not always be justified. When the case is politically sensitive talk of “persecution by prosecution” ensues. Just like an investigator, a prosecutor cannot create a case out of no case. Besides going to great length to conceal their crimes, perpetrators of fraud and corruption often create war chests to hire the best legal teams to defend them should they be caught. Public-private partnership in prosecution is therefore equally important for successful outcomes. Many “expert witnesses” may not be in the public sector.

Trial

An independent judiciary is of cause the icing on the cake. All players in the preceding stages are going to play their roles in good faith when they know that there is going to be a free and fair trial at the end of it all.

Conclusion

Finally, we have to keep in mind that the fight against fraud and corruption is an all embracing campaign, not merely uncoordinated battles. It should encompass both proactive and reactive measures. While the reactive actions of allegation, investigation, prosecution and trial generate heat and sound, the real test of a corrupt free society is in the proactive arena. How does society view corruption? Is a corrupt person ostracized reminiscent of a child molester? If not, why and what should be done? There may not be any easy answers. But one thing is certain: Corruption should be made to be abhorred through socialization and education.


Caleb Mutsumba
Forensic Audit Consultant
Mobile +263 712 620287 / WhatsApp:+263 772 466540
Skype: caleb.mutsumba
LinkedIn:- http://zw.linkedin.com/in/calebmutsumba
Blog: – https://5whaudit.wordpress.com/
Twitter:- @Caleb_Mutsumba

Cecil John Rhodes : Confession of Faith (1877)

Confession of Faith (1877)

“ The idea gleaming and dancing before ones eyes like a will-of-the-wisp at last frames itself into a plan. Why should we not form a secret society with but one object the furtherance of the British Empire and the bringing of the whole uncivilised world under British rule for the recovery of the United States for the making the Anglo-Saxon race but one Empire. What a dream, but yet it is probable, it is possible. I once heard it argued by a fellow in my own college, I am sorry to own it by an Englishman, that it was good thing for us that we have lost the United States. There are some subjects on which there can be no arguments, and to an Englishman this is one of them, but even from an American’s point of view just picture what they have lost, look at their government, are not the frauds that yearly come before the public view a disgrace to any country and especially theirs which is the finest in the world. Would they have occurred had they remained under English rule great as they have become how infinitely greater they would have been with the softening and elevating influences of English rule, think of those countless 1000’s of Englishmen that during the last 100 years would have crossed the Atlantic and settled and populated e  rhodesWould they have not made without any prejudice a finer country of it than the low class Irish and German emigrants? All this we have lost and that country loses owing to whom? Owing to two or three ignorant pig-headed statesmen of the last century, at their door lies the blame. Do you ever feel mad? Do you ever feel murderous? I think I do with those men. I bring facts to prove my assertion. Does an English father when his sons wish to emigrate ever think of suggesting emigration to a country under another flag? Never; it would seem a disgrace to suggest such a thing. I think that we all think that poverty is better under our own flag than wealth under a foreign one.”

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Cecil John Rhodes 

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Poignant this – when juxtaposed with the topical current affairs phenomenon of Brexit and Trump.

 

Caleb Mutsumba

CSSA: Ten Practical Guidelines to Improving Board Communication

Ten Practical Guidelines to Improving Board Communication

3 May 2016

Dear Colleague

Chartered Secretaries Southern Africa (CSSA) is proud to announce the launch of a new paper titled “Ten Practical Guidelines to Improving Board Communication” by the Corporate Secretaries International Association (CSIA). CSSA is a founding member of CSIA, which has over 70 000 company secretaries and governance professionals worldwide. Ensuring effective board communication has always been a critical aspect of the company secretary’s role. In the face of new and ever-increasing liability for directors and the incorporation of the business judgment rule in many jurisdictions has brought this duty more to the fore than ever.

CSIA’s new paper provides useful and practical advice for company secretaries and governance professionals to balance the imperatives of management and the board to improve the quality of discussions and the decision making process.

The paper was launched in London on 28 April 2016 by CSIA at a webinar co-hosted by Diligent Corporation, sponsors of the paper and chaired by Carina Wessels, Past President of CSIA and CSSA. Joining Carina on the panel was Charlie Horrell, Managing Director, Europe, Middle East and Africa, Diligent Corporation and Meena Heath, Global Ambassador, Global Leaders in Law, who fielded incisive questions submitted by the 200-plus attendees. CSSA continues to play a leading role in the international community of company secretaries and governance professionals.

A press release describing the launch; the full paper on “Ten Practical Guidelines to Improving Board Communication” and the webinar can be accessed on this link www.csiaorg.com

Regards,

Stephen Sadie
(MBA, M. Ed)
Chief Executive Officer