Not all companies are capable of going the distance. Things happen, integral people leave, and strategies get stale. It’s normal, but you certainly don’t want this to happen to your company. So, how do you assess the health of your company and avoid it going downhill? With open communication and regular conversation.
In this post, I am going to tell you why communicating with your employees from the top down is going to improve company health and prevent any large scale disasters.
Simple communication could be the key to the longevity of your company so, let’s get started.
Assessing Your Company Health Through Conversation
Many businesses sink or swim on how well they communicate internally. Encouraging an open environment where everyone feels valued and that their opinions matter has the potential to greatly improve company morale and when morale is high, production usually follows.
Creating a communicative environment at your company isn’t as easy as flipping a switch, however. Improving culture is the result of open communication, but making employees feel comfortable communicating with management and even their own peers when this wasn’t the case before is a process.
When employees start to feel this change and become more comfortable expressing themselves is when you can begin to really assess overall company health. We’ll look at the specific numbers later on, but first I am going to talk about how being transparent with your employees can lead to positive changes.
Companies run into major problems when the few people at the top make big changes in the direction of the company without consulting integral members of management who handle day-to-day operations. This isn’t to say that they should delegate these decisions to their managers and employees, though.
Instead, the leaders of the organization should come up with ideas for change and then open the floor to discussion. This is where ideas can be picked apart, revised, and built upon to turn the company in a direction towards improvement instead of making big changes without considering the opinions of others.
Tackle Big Issues
Every small issue doesn’t require large-scale discussion. Instead, the conversations should focus on the biggest issues that have a direct impact on company health.
Look at ratios with your managers and talk about ways that the company, as a whole, can make them better. Your bottom line is often intertwined with the fundamental issues that determine success or failure. Things like business strategy, leadership, and capabilities of departments and specific employees should be discussed.
Keep these conversations relatively structured and ensure that everyone feels comfortable with voicing their opinion. Start the conversation with leaders and have them bring the conversation to those directly beneath them and so on and so on.
The trickle-down of constructive conversation will soon create an openness that will permeate through your whole company’s identity. When every single employee feels that they’re thoughts are valued, they’ll be far more inclined to fight for the health of the business.
At the top, ensure that you’re still paying attention to the numbers. You should see positive upticks of revenue as a result of increased productivity; a good indication of company health. Discuss improving your strategies and the trickle-down will ensure that these are implemented effectively. Let’s now talk specifically about a few of the ratios you should focus on.
Looking at Ratios
Your business, like most others, will have financial ratios that you want to hit to know how your company is doing. Your return on assets, quick ratio, current ratio, and operating cash flow ratio are all signs of how you’re doing financially and can help you consistently monitor company health in addition to having regular conversations with management.
Your current ratio measures whether or not you have enough resources to meet your short-term obligations. Lenders will always want to see a 2:1 of assets to liabilities. Anything below 1:1 will indicate liquidity problems and anything above 3:1 indicates potential issues with asset management.
This is probably the most important thing for measuring the short-term health of your company.
Your quick ratio is your current ratio with your inventory removed. It’s an indicator of how quickly a company can meet short-term financial obligations with near-cash assets. Your inventory needs to be sold, so it is not a near-cash asset.
As long as it’s 1:1, then your company is looking okay financially. You can calculate it by comparing your cash and your receivables with your liabilities.
Operating Cash Flow Ratio
Your operating cash flow ratio tells you how well your operations cover your current liabilities. In a given period, your ratio will measure how many times you could pay off your debts with the cash flow that was generated.
Obviously, a ratio of less than 1:1 means that you haven’t made enough money to cover your current liabilities.
Use Your Ratios to Start Discussions
Use these numbers as the starting point for your discussions. Hitting certain ratios allows you to create attainable goals at the top. To achieve these goals, all of your employees down to your interns will have company goals of their own that they need to achieve. This can only be done through open discussion.
Start the Conversation Immediately
If your ratios aren’t where they need to be and you feel that communication is disjointed within your company, you know what you need to do. Admitting that communication is a problem won’t be easy, but it is a great starting point for large-scale turnaround.
To help you start the conversation within your company, visit the Eric Maddox consulting and training page.