Uncategorized on 25 Jan 2007 02:18 pm
Companies Should Go For Regular Health Checks
Many companies have annual medical examinations and health screening for their employees but are negligent when it comes to their own corporate check-ups. Poor management and financial information systems typically get blamed for management’s inability to ’see it coming’. This is because the checks were done too late. Similar to handling of diseases and illness, early diagnosis and detection can mean the difference between life and death. Medical science has proven that even terminal diseases such as cancer can be cured if detected early. This is why doctors encourage their patients to go for regular check-ups. Regular checkups are critical to facilitating early detection and helps to remedy ailments.
Likewise for companies, if the problems are discovered early enough, help can be rendered. Otherwise, the danger of late detection may mean that help can come too late and the sick company will have a lesser chance of recovery. Thus companies need to know their current health status and should go for regular health checks.
Companies should know their current fitness level as part of the regular health check. The fitness level assesses the state of health of the global, local economic and political arena, the industry specific issues and dynamics as well as the issues relating to the company. The trouble is that companies do not know their state of fitness and often adopt a ‘firefighting’ approach whenever the companies are in trouble. Early diagnosis is always better than a post-mortem.
On the economic front, the check should evaluate some of the leading economic indicators such as GDP growth, consumer confidence and stock market growth. Political stability is also critical as political chaos can severely upset economic and business confidence.
On the industry front, the check should include reviewing the business trends, consumer spending, the competition as well as the product life cycle.
At the company level, the check should reveal a full picture of the company’s profit and loss, balance sheet as well as cash flow positions. The use of financial ratios as key performance indicators will help to identify current and potential troubles. Control procedures should be reviewed to ensure that the company does not undertake too much risks and financial burdens.
It is useful for companies to hire turnaround experts to review the company’s operational, financial and sales/marketing matters. This is a business audit. Unlike the annual external audit which focuses on the financial checks and balances. The business audits will check on the overall corporate health including studying into the viability of the business model. Turnaround experts are better positioned to do this job as they have undertaken corporate turnaround assignments and therefore understand what make a company tick. An external accounting auditor will not cut it as he or she will not have the business acumen to understand the overall health.
Through these fitness checks, the company can then determine whether the impending problem is financial in nature, which may be a case of over-gearing and cash flow problem. Operational and control issues may be involved too, such as frauds, financial scandals, etc. These checks can prepare the top management for some exigencies such as a change of political regime, government or terrorist attacks, etc.
When the checks revealed any areas of weaknesses, the company needs to prescribe the appropriate treatment. The company may need to employ some form of financial reengineering to resuscitate the company. If necessary, enlist the assistance of turnaround specialists. Therefore knowing the state of one’s health is inadequate, one needs to take appropriate actions to remedy the situation.
Have you done your health check lately and got your temperature checked?