1. Most companies will change their over-reliance in the setting up of servers to host their businesses in a bid to reach their clients. This move will lead to many IT companies that earn most of their money from web hosting activities changing their business strategies if they are to avoid the possibility of being eliminated from the value chain. The IT personnel in many companies may be affected with most of their duties being outsourced or transformed into new roles.
2. With the introduction of cloud computing, many companies are likely to change their perception of the internet merely as a means of communication. This could lead to a number of businesses embracing the internet as a deliberate medium of service delivery; the online economy is likely to grow at a much faster rate as compared to the earlier rate.
3. The other trend that is rapidly taking shape with the growth of cloud computing is low-cost of computer services. Hither to the introduction of cloud computing, software companies were able to sell their software and other applications such as operating systems to a very large number of clients. Cloud computing has however made it possible to share software, applications and hardware to a larger client base from one single source. This makes it cheaper for the consumer to access services. The maintenance cost of computing systems will drop drastically and many more people will be online. Such a move is likely to see an increment of online businesses as it will cost less to host your store online. The buyers will also find it cheaper to buy products and services if the reduced cost of doing business is passed down to them.
4. However, there is a little bit of tussle going on – what cloud computing exactly means. Please read the interesting article below.
5. http://online.wsj.com/article/SB123802623665542725.html

• Can creativity and innovation be developed, or is it inherent in man? Galileo said, “You cannot teach a man anything; you can only help him find it within himself.” While creativity mostly comes out of the blues at the least expected times; innovation takes time and comes through a good working knowledge of the existing processes involved. We can promote workplace innovation by getting the employees to participate on projects, supporting and inspiring them to think outside the box and experiment and allowing them to transform.
• Give your employees all the room they need: Innovation is also developed by using visual aids and techniques, holding periodic meetings and healthy debates, encouraging questioning, researching different industries for copying matching ideas and allowing employees to think out loud and sleep on fresh ideas. Before a meeting, the participants could be asked to submit ideas in anonymity; where a vote would be taken, again in anonymity. After a discussion of the pros and cons of the best ideas voted in by the participants, some tactical as well as strategic ideas could be taken up for immediate implementation. Winning ideas may be rewarded including a special award for the best idea of the year.
• Give innovation a try and be quick at it: Create a free atmosphere where every encouragement is provided for generation of new ideas with no restraints. Include everyone and not a selected few. Innovation requires continuous support and encouragement for all.
• Leaders should refrain from ridiculing any new ideas proposed by employees, however inappropriate they may appear to be. Never discard them wholesale; but store them in an “inventory of ideas” for possible reconsideration at a different time and possibly for a different process, product or purpose. If people are allowed to become cautious through the management’s outright rejection of their ideas, that could be a stumbling block for further innovations to flow freely.
• If employees are too cautious and unwilling to come up with innovative ideas openly for fear of being ridiculed, have a system in place for employees to drop their ideas in anonymity into an “improvement suggestions” box or by filling a form via the organization’s website. In either case, they should be asked to use a secret password for subsequent identification, reward and recognition in case a proposal is accepted as an innovation for implementation.
• Innovations should always be rewarded by due recognition and publicity within the organization. All innovations may be recorded and held decorated in a “Hall of Fame”. Rewards need not be substantial. Monetary rewards could cause conflicts and frustration among innovators due to difficulties in assessing the extent of cash reward for a given innovation. Purpose of reward should be to motivate employees to come up with more innovative ideas. Recognition by the management and fellow workers would work wonders for their ego and morale.
• Even if an idea is not accepted for implementation, show respect and gratitude to the employee concerned; and discuss with him or her how the idea may be modified or improved upon.
• Studies indicate that around 80% of innovations happen unintentionally and through mistakes. In the bestseller “Built to Last” the co-authors Jim Collins and Jerry I. Porras discuss some accidents that paved the way for major innovations as not being mere ordinary accidents, but  “purposeful accidents” set in motion by the tremendous encouragement given by those visionary companies for experimentation, opportunism and trial and error methods as opposed to immaculate strategic planning.
• Some examples of such accidental innovations discussed include Johnson & Johnson’s move into Consumer Products with the discovery of “Johnson’s Toilet and Baby Powder” and “Band-Aid”; the opportunistic step taken by Marriot into Airport Services from providing catering services in airports and inside airplanes, unintended entry of American Express into Financial and Travel Services and then on to Tourism and Travel with the introduction of their Travelers Check, how the simple designing of a small computer for adding power to its instrument product line led HP into entering the computer business without any prior planning. 3M had initially badly failed in its mining business before stumbling on to a series of very successful innovations like now famous small household items like Post-it notes, Masking and Scotch tape etc. The authors go on to claim that these innovations were neither aberrations, nor due to random luck factors, but certainly due to “evolutionary progress” (unplanned progress) triggered by something bigger at work from within.
• Accept that mistakes will occur: Highly acclaimed “innovations” often fail subsequently due to various reasons. Every failure affords an opportunity to learn new lessons for future guidance. Ironically, failures and innovations very often go together. Failures give birth to new ideas that then sometimes emerge far stronger than the original failed innovation. You have to risk failure if you need to innovate so as to succeed consequentially. Take the story of Ayrton Senna, the Brazilian GP F1 driver and 3 times world champion prior to his accidental death in 1994. In a related documentary, a F1 expert answering a question as to what made Senna such an outstanding driver, said that Senna knew no fears to commit mistakes and that he collected so many mistakes in the early years of his career itself from which he learnt a lot to keep far ahead of all other drivers.
• Take small steps: Innovations should be introduced in stages wherever possible for easy identification of its most critical phases. This makes it easier to take appropriate controlled measures, and preventive or remedial action. The alternative to “repairing” an innovation is its abandonment in entirety as a complete failure.
• Criticism of an intended innovation by workers could pose problems for its smooth implementation. Leaders may probe 5 times (technique developed by Sakichi Tayoda) before presenting a change; and then clearly define the problem areas observed. Offering a range of probable solutions simultaneously would stop empty criticisms of the intended innovation and make the employees concentrate on evaluating the possible solutions instead.

Before we embark on a discussion on this subject, let’s first try to discern between innovation and creativity.

• In the words of Einstein, “Creativity is seeing what others see and thinking what no one else has thought”. Theodore Levitt coined innovation also into the equation, and said, “Creativity is thinking up new things. Innovation is doing new things.” Innovation cannot exist in the absence of creativity. However, creativity may sometimes not be practically proved until innovated. Invention can fit in between creativity and innovation.
• Henry Ford said, “If you think you can do a thing or think you can’t do a thing, you’re right.” One deterrent for business growth is the difficulty of getting the executive management to change.
• Innovation is facilitated by the creation of an innovative or proactive culture in an organization by its leadership. Having made a business proposal to a prospective customer, to wait for a response from that party is reactive; but a proactive business concern that takes the initiative by following up on the proposal would clinch the deal.
• A proactive culture is considerate and not restrictive. Significant breakthroughs have very often been achieved by being proactive. A proactive leader would be seen very often on the phone at office, home, or even when on the run. Such leaders would manage their email rather than letting their email manage them.
• Things unsaid at the correct time could mean lost opportunities. Some potentially brilliant ideas never come to be uttered, and therefore might never be heard.
• The famous saying that “Failures are the pillars of success” is applicable to every forward-looking organization. Dealing with failures comprises an important part of leading innovation. Statistical inferences gained from failures enable leaders to make well-informed decisions confidently with regard to future innovations.
• Failures could at times lead to accidental innovations for a different project, department, process, or even a different purpose. Some real-time examples of such serendipity are smallpox vaccine, Teflon and “Post-it” notes which was the outcome of a 3M misadventure on making a certain glue. 3M was latterly taking a “try a lot of stuff and keep what works” approach. On the flip side we find Norton, a company 10 times the size of 3M at one time, but cumbered with its centralized, bureaucratic and stagnant approach. Norton explicitly discouraged entrepreneurship, creativity and looking outwards for new opportunities beyond its traditional businesses. They emphasized too much on planning from the top down. Norton eventually did try to innovate and expand with acquisitions, but their turnaround in approach to innovation came too late. Norton was acquired on its way down in the nineties.
• A long-term vision is essential with timely responses to changing markets. Having and maintaining an innovative leadership position amounts to continuous innovation.
• It is only when you maintain a culture of innovation, or have a vision of attainable possibilities, that you would realize what you have missed, or what you are missing; despite little innovation.
• Poor management makes employees spend more time discussing about their weak hierarchy than on doing their work.
• People in trenches are not necessarily simply doers. What is more important is their close involvement with daily operations and customer contacts. It is something that leaders should take good note of. When working in trenches, leaders should be focused on the big picture. When there are issues to reckon with, what should be aimed at is not simply resolving the symptoms and moving on, but resolving their root causes. Root cause analysis sometimes leads to innovating new products or processes. Of course, failure to appropriately deal with the root causes could leave you with the dilemma of a continuous maintenance nightmare.
• Capturing customer interactions with a product and analyzing its pain points can lead to innovations for making it a better product.
• Creativity could spring from the most unexpected sources at the most unexpected times. A good leader never laughs at creative ideas. Do not ignore “smalltime ideas” like improving a process time by a few seconds or marginally reducing stationery costs. These simple items in virtue of their repetitive nature could contribute more towards reducing ultimate overall costs than rare single items of high value.
• Further, competitors will be fast to copy how you handle your big items whereas how you handle your small items might go unnoticed. Thus, handling your small items well could gain you a comparative advantage over your competitors. One meticulously planned innovation could set off a train of similar or connected innovations. Leaders should try to adopt the US cold war domino theory to advantage for business innovations too. Scholidice Hospital in Canada specializing in Hernia Operations concentrated on a small item like reducing the bed occupancy time of patients. This innovation led to many other innovations like having no TVs in rooms, less laundry, surgeons trying to make their patients walk as soon as possible after surgery, which in turn motivates patients to feel better. All this made this hospital outstanding in its field as to make a niche for itself.  Other hospitals trying hard to copy and adopt these measures have not met with much success.
• Copying gives you the advantage of knowing all the pitfalls in advance; a disadvantage is that you will never be the first in the market.
• Having a capacity to listen and to be honest and spontaneous in one’s appreciation and encouragement paves the way for continuous innovation. An alert leader with the vision and wisdom to see its significance could transform even a seemingly minor complaint by an employee into an innovation.
• Showing appreciation for workers’ ideas could transform their attitudes from one of detachment and frustration to one of active participation, involvement with a sense of fulfillment.
• Have a system in place capable of extracting and converting basic ideas to strategic advantage. The system should be well supported with policies and procedures, structure, culture, budgets, skills and rewards. Some firms have similar systems for project performance appraisals too.

Summing up, the benefits of innovation could be broadly stated as staying ahead of the competition, getting a broader perspective of all relevant issues, motivating others to do your bidding while giving of their best; that could also lead to reducing labor turnover.

Technorati Tags: creativity, critical thinking, innovation

• Non-access to Actual Users:

You should have continuous contact with the main users of your application. Keep in mind that they are the business analysts of your organization who are in daily use of your application. They should be encouraged to have faith and contribute to your project requirements. If they cannot be made to accept the project through conviction and direct contribution, no amount of further training will. Crisp requirements gathering and taking time to explain the requirements back to users should be an essential feature of a successful BI implementation program.

• Lack of Audit Controls:

A rather common pitfall is that many BI Project Leaders carry the misconception that audits and controls are not necessary where the projects are not of an “operational” nature. This is a grave mistake that drives out your audience especially in the absence of a guarantee that your numbers are matched with those in the original. What actually needs to be done is to show that your environment can be relied upon as much as an operational one. In cases where the numbers do not match (as they invariably will), audit trails and statistics could be produced to reconcile and explain those differences.

• Lack of Confidence in Data Quality:

Another very common pitfall of a BI project is its inability to sustain the confidence of the business community over the quality of data for decision-making. Obviously they would insist that it should be of the highest possible quality and expect even a higher quality than with regard to data in an operational environment. Devising and employing appropriate metrics for the measurement of data being sent out to your warehouses and marts would be the solution to restore their lost confidence and win them back over to you. I cannot emphasize more; GIGO (garbage in, garbage out) is of relevance here. Good decisions cannot be made from bad data. This has very often been a primary cause for breeding distrust that has eventually led to the abandonment of many projects. The lack of clear statements of success criteria along with a lack of ways to measure program success have led to perceptions of failure. Limited knowledge on technology, architecture and underestimating the need of quality information will certainly lead eventually to project failures. This will lead to decreasing trust of users on the information and there will not be any decisions made using that info. This is a big blow to BI. In such situations, having ‘data stewards’ and some data-cleaning tool in place is well worth the cost and effort.

• Under/Over Investment in a BI Program:

Under-investment in developing BI and data warehousing core competencies can eventually lead to a BI failure. Conversely, BI investments are wasted unless they are related to specific business goals, analyses, decisions, and actions that result in improved performance. For instance, it is commonplace for BI vendor value propositions to stress on business benefits such as responsiveness, agility, customer intimacy, flexibility, information sharing, and collaboration. But investing in a Business Intelligence Implementation to achieve such business benefits may in actual fact destroy the business value unless those properties can be defined in operational terms and realized through business processes that affect costs or revenues. For example, unless a $3 million investment in a BI application results in an incremental cash flow (after-tax) of at least $3 million; the organization will suffer a decrease in assets.

• Absence of a Mentality of “Application Reusing”:

In this particular business, hardly anybody builds just a solitary BI application; rather an entire environment to facilitate the decision-making process by diverse business users. This means building multiple applications, while making every new application an extension or an improvement over the immediately preceding one. These projects must be capable of being easily coordinated and for projecting a concept of reusability. This necessitates that you incorporate a program management function to fund the projects on a priority basis. This would in turn involve the creation of data models, project plans and reusable templates that need to comply with set program procedures and standards. Non-reuse of information leads to duplication of costs and efforts.

• Absence of an appropriate Architecture:

Creation of multiple projects should only proceed with a supportive architecture. It would be your Roadmap too for the determination of how and to what extent each project fits into your overall BI strategy; and their respective contributions to the environment. No supporting architecture means just the presence of some random databases that would only succeed in creating chaos in the entire reporting process. There could be multiple versions of architecture that meet different organizational needs. You may create your own to best suit your particular needs. The Corporate Information Factory is a good model emulated by many organizations.

Here are further causes in brief that led to BI implementation failures in real time:

• Although general principles of systems development do apply to BI implementations, the amorphous understanding of what BI methods and products could do result in absence of a proper value proposition on behalf of the business sponsor.
• The scope of the project was not fully understood causing delays in delivering to the business sponsor.
• Poor understanding of technology infrastructure leading to poor planning and scheduling.
• Adherence to long project cycles instead of short crisp agile projects.
• Excluding negative stakeholders that lead to political controversies.
• Ignoring project management rules.
• Inadequacy of articulating an organization’s results expectations.
• Failure to Set Appropriate Expectations and Metrics on features, performance, quality, availability, security and accessibility. For instance metrics for availability could be uptime, downtime, or MTBF.
• It is not simply creating information but utilizing it in decision making and incorporating the benefits back into ROI calculations that should be targeted. This is where most companies lag behind. Once BI is in place, there is no review of the benefits at later stages of the BI life cycle.
• Building a team that is weak and devoid of appropriate mix of skills.
• Incorrect integration of data.
• Misalignment between business strategies, core business processes that drive performance, and the BI program or initiative.

It is hoped that the above stated common factors and pitfalls known to be very often associated with business implementation program failures will act as a forewarning to stop you in your tracks if you also seem to be treading a path to danger and breakdown.  Even if you do happen to fall, being forewarned should help cushion the fall and give you sufficient time to change direction and recover to revise the project and continue with it instead of abandoning it.

BI is all about the multiple functions of defining, collecting, analyzing, compiling and distributing the intelligence relating to products, suppliers, customers, competitors and many other aspects relevant to a particular organization depending on its own peculiar range of activities. Business Intelligence is derived from information. However, If the information cannot be used effectively for strategic decision-making by an organization, that information falls far short of BI expectations.

The management of an organization trying to lead it to success without being armed with tools of business intelligence is like a captain of a ship trying to navigate it without a compass and a rudder. Gathering business intelligence is an accepted business practice. It is not something unethical. It should not be confused with the illegal activities of business espionage. Knowing what your competitors are doing and the changes taking place in your industry are important for assessing your weaknesses and strengths and keeping a competitive edge over your rivals. This aspect embraces competitive intelligence, which is something that goes beyond the normal concept of analyzing competitors. It involves placing much greater emphasis on making an organization more competitive in relation to its broader environment inclusive of all its stakeholders. The stakeholders of course comprise shareholders, customers, suppliers, technologies, distributors, macro economic data, the competitors themselves etc.

Changing consumer trends and patterns for your product/s due to the availability of cheaper substitutes put out by competitors, state of the economy etc.; and introduction of advanced technologies that make today’s techniques obsolete overnight are few examples of significant changes taking place within a business environment. Some of the sources of BI to be derived through IT are the internet, newspapers (especially Business Week, Wall Street Journal and Fortune), radio, TV and your own suppliers and customers in addition to other primary and secondary sources like trade exhibitions, trade conferences, forums, blogs, market research, financial reports, statistical databases, information centers, libraries, online advertising, subscription databases, news aggregation services etc.

You will not find a company’s strength in BI quantified in an organization’s balance sheet; neither is it taken into reckoning in any of the accounting ratios calculated for ascertaining the worth and status of a business. Nevertheless, it exists in every organization although at different levels of effectiveness. It is something comparable to Goodwill for its hidden nature, but far more versatile and far-reaching in its implications. It is an intangible asset that should be there at the core of every business enterprise. BI should form the basis or foundation for all strategic decision making in an organization. When an ideal BI environment exists within an organization, it should be a catalyst for effecting changes incorporating the latest trends with business acumen. The knowledge of the strength one’s BI system as a whole would enable one to forge ahead with the planned change with absolute confidence. For example, before we try to assess what our most profitable production centers are, we must be able to articulate the difference between profitable, more profitable and most profitable centers.

Business intelligence was split broadly into four categories by practitioner Estelle Metayer. They are, namely Strategic (concerned with the long term), Tactical (short terms implications), Adhoc and Continuous. Some companies depend on purchased BI software for the bulk of their business intelligence requirements while most organizations employ analysts to work on computers and databases in formulating their own BI methodology to fit in with their respective requirements. They create the necessary Key Performance Indicators (KPI) more popularly with Goal Alignment, Baseline and Metrics related Queries.

Goal Alignment Queries examine your goals and at what areas they are specifically directed at, such as a higher rate of profit per unit, an enhanced segment of the market share, increasing your customer base, finding alternative suppliers and sub contractors (if any), launching an entirely new income stream etc.

Baseline Queries are concerned with your current methodology and approach to gathering and integrating data, detection of their weaknesses and strengths. They help determine which specific tools are performing well, the weaklings, the ones that need tweaking and also what tools could be added to further enhance performance.

Metrics Related Queries are among the most important within a system of BI. Data that cannot be properly measured and quantified is of no value to any business entity. These queries try to identify areas where proper measurements are not being made with a view to finding solutions to their accurate measurement so as to be useful for BI purposes. Properly measurable data, facilitate their easy and accurate analysis to determine what work for the organization what do not.

Some advantages of BI:

• With the right type of business intelligence, you can avoid unpleasant surprises by anticipating the possible moves by your competitors. You can also minimize the time you would need to respond effectively in the event of a competitor gaining some ground over you.
• For example, major airlines use BI for planning their own strategies for pricing, marketing and production. As a result, they are able to counteract dog eat dog tactics adopted by their competitors, by responding with revised fares for different routes; sometimes on a daily basis.
• Advance detection of risks, opportunities and other market conditions. This is also called the Early Signal Analysis (ESA).
• Maximizing profitability and minimizing costs.
• Improved Customer Relationship Management (CRM).
• If you were to ask a Company CEO where his company would be in 3 years from now, the level of accuracy to which the CEO is capable of making a realistic prediction depends on the strength of the business intelligence in the possession of the company and how well they are applying their available BI for strategic planning and decision making.

• Most organizations sell multiple products rather than a single product. They need to have pre-defined plans in respect of each of the products they market. A trading, organization would plan for the type of products to trade in, if not the specific brands. A manufacturing company should make plans on the different technologies and innovations they will use for the manufacture of a range of products. Service organizations should plan in advance for the types and modes of services to be provided. Whatever the plans made, organizations should adhere to them in producing and marketing their merchandise.
• After selling a product mix over a period of time, you would come to identify the most profitable products/services, in addition to quite profitable, not so profitable and also the unprofitable items. Selling the most profitable products only would maximize revenue provided they could be sold in reasonably large quantities.
• A sale is said to be complete only after the money is realized. If you took too long to collect debts, your cash flow suffers depriving you of much needed working capital for maneuvering the business well. Select customers who pay on time and sell as much as possible to them. However, keep in mind that selling to a customer who does not pay fast, but buys in very much larger quantities could sometimes be more profitable to you. Hence you need to be more analytical in deciding on   which customers to target most.
• Identify the products/services that contribute the highest margin per unit towards your fixed overhead, and maximize their sales. Don’t forget that it is ultimately this margin that contributes to your cash flow as well.
• If market research indicates that there is a better demand for your products compared to those of your competitors, it is a positive case for raising your prices. Conversely, if the demand for your products is slack in the face of stiff competition from other contenders, consider reducing your prices to gain an advantage on them. Encourage customers to buy in larger quantities by granting volume discounts.
• At times of high inflation and rising prices, your sales could be giving a false picture of improving sales year after year when in actual fact you may be selling less. In order to be correctly informed, record the quantities too alongside your net sales figures for the organization’s internal use. If you look after the unit sales or quantities well, the sales amount will just fall into place.
• In respect of products enjoying a high demand and especially with regard to seasonal and customized products, you are at an advantageous position to negotiate for advance payments from customers to reserve their requirements and ensure continued supplies.  Apart from its cash flow benefit, it facilitates the planned production to actual customer requirements. Customers who are noted for delaying payments may be asked to keep a sizable deposit on a continuous basis or face the possibility of being refused supplies. Alternatively, customers could be asked to make progress payments so as to keep a margin at a fixed percentage on their outstanding order values as at any given date. Progress payments could also be arranged so as to cover all debts except those falling within 30 days.
• Sales of small values should not be given on credit, since the costs of invoicing, following up and collecting would far exceed their profit margin. Consider giving cash discounts to encourage cash sales at all times.

The board of directors of a company may have a variable policy with regard to its dividend payments, or may opt for a consistent policy over a long term. Basically, the board has to decide between paying out a dividend to keep its shareholders happy in the short-term; or retaining the profits for re-investment for further expansion of the company. In making this decision, the company may also take into account:

• if the quantum of the dividend payment is compatible with their ready cash availability. A possible alternative to keep to your goals while satisfying the shareholders too is to issue company stock in lieu of cash dividends. A disadvantage is that it would result in the sudden drop in the company’s EPS (earnings per share).
• that paying a constant dividend serves as a positive signal of the company’s current good health to the share market and the outside world. Paying an increased dividend indicates the board’s confidence that it could be maintained into the future too.
• investors tend to prefer a company retaining and reinvesting dividends instead of paying out at times of high taxation on dividends compared to capital gains;
• that you need to either cut down on your investment programs or borrow from external sources to fund the dividend payment at times of constrained and/or reserved cash flow. Microsoft Corporation, for instance (founded in 1975) that went public only in 1986 never paid cash dividends until 2003. The principle behind this thinking would apply more aptly to fairly new and fast expanding companies.

To sum up, features of a proper system of company equity management would comprise:

• Controlled issue of new stock as and when necessary for raising additional funding for ambitious investment projects.
• Maintaining a steady or continuously growing EPS and DPS (dividend per share) or a constant DPR (dividend payout ratio – as a percentage of earnings).
• Some companies may maintain both ratios simultaneously; that is, a constant or a steadily increasing DPS ratio as well as a constant DPR. This is very much characteristic of large mature companies in the food industry like Tootsie Roll and Kellogg.
• Maintaining a steady or increasing SP (Share Price) for its stock. Conversely, cutting back on dividends adversely affect the SP. For example, many companies in the US automobile industry did not reduce their dividends since 1990 despite the recession until their EPS became negative. General Motors went on increasing the dividends until forced to cut back in 2006 after making substantial losses for two consecutive years.
• Issuing bonus shares to all shareholders or directors or both.
• Issuing discounted shares to directors or employees or both.
• Not making dividend payments especially in the initial years with a view to reinvesting same in the business for future growth.

Borrowing may be done through equity financing or debt financing. Equity financing is generally done to get a company off the ground although it may be resorted to at times of a major expansion. A company for its intermittent special cash needs would raise debt by issuing debentures and various types of bonds although the more popular form of debt financing is through banks and other financial institutions. Most lending institutions lend for all purposes without discrimination while some specialize in lending for specific purposes only.

Borrowing is not necessarily a sign of financially instability. The healthiest of corporations too carry some level of indebtedness to lending organizations. Some loans carry significant tax concessions on the interest or the principal components or both. Take advantage of institutions that lend for specific purposes at concessionary rates of interest. If you are borrowing for adding motor vehicles or plant and machinery, consider the option of leasing instead, with their inbuilt tax benefits. Never rush to borrow. Always borrow only the minimum required and as late as is practically feasible.

When borrowing, there are many factors that need to be considered carefully before deciding on your prospective lender:

• Obtain quotes from the best banks and reputed financial institutions for the capital required. Having segregated the best quotes, negotiate further on the rate of interest, other finance charges and all loan terms in general.
• If the project envisaged is expected to take some time before yielding income, search for a lender who agrees to deferrals on interest or principal, or both. Make sure that you provide for cash flow to meet repayments when installments start falling due.
• In order to have a safe working capital to play with, re-schedule whatever possible loans to be repaid over longer periods with smaller monthly installments. A disadvantage in spreading the loan over a longer period is the increase in the total cost of the loan to the organization.
• Make your ultimate choice of the prospective lender on the basis of an analysis of the total effective cost of the loan offered by each. This may be done by creating a realistic scoring system that assigns due weighting to the factors involved according to their level of impact on the finances and cash flow of your organization.  Study each package in detail with special emphasis on interest rate and all other financial terms including repayment period allowed with or without deferrals on interest and/or principal. Pay special attention to what is in small print. That is the area, which often contains the most restrictive or obnoxious terms (if any) of an agreement.
• Always match long term needs with long term loans. They will invariably be secured loans carrying more favorable interest rates and/or deferred payment terms. A disadvantage is the penalties imposed if you try to settle these loans earlier than as scheduled in the contact. As such, long-term loans should never be taken for short term funding requirements, and especially for those of a seasonal or short-term recurrent nature.
• Rolling the total interest payable over a loan’s entire life into the principal converts it to a bulk amount to be repaid over a specified period in equal installments. It makes the repayments easier to manage and work with. Additionally, it spreads the total cost too, uniformly over the life of the loan.

Avoiding prepaid expenses can help you in enhancing and maintaining a favorable cash flow. Prepayments generally occur when the period for which a certain payment is made, wholly or partly overshoots an accounting year. Subscriptions, vehicles licenses, all types of insurance payments, local rates and taxes, rents, leases and royalties comprise the most common accounts that are carried forward as prepayments. In such cases, consider making payments monthly, quarterly or bi annually instead of annually. It needs to be done wherever possible as long as the payments remain pro rata. However, If there is some benefit of a special discount or come other advantage accruing to the organization by making an annual payment rather than (say) 12 monthly installments or 4 quarterly payments, such cases would have to be considered separately on a case by case basis. Common examples of such situations are subscriptions for newspapers, magazines and periodicals and to professional institutions.

Deposits ( Deposits are liabilities for the bank!)  too are classified under current assets along with prepayments. However, unlike prepayments, deposits are most often mandatory and therefore cannot be avoided. The best you can do is to keep track of all recoverable deposits and call for their refund immediately their purpose is done or their period of validity expires.

Salary advances is another form of prepayment to be discouraged. Your employees could be educated on the benefits of taking a bigger packet home rather than drawing it in small installments.

Taxes generally come to big amounts. Missing to claim tax benefits on certain expenses or adopting an incorrect rate could cost you dearly in terms of cash flow. Due to this reason, taking every possible care in the accurate computation of your tax liability cannot be over emphasized. Overpayment of taxes arising from incorrect tax computations, once detected, invariably end up in a balance sheet as tax prepaid.

Acquisition of fixed assets should be accompanied with meticulous planning and attention to detail. At the inception, you may take advantage of market research already available for the industry to determine your probable share of the market segment. You may also do some research of your own, if necessary.  Target the barest minimum of fixed assets to achieve the desired level of production or output keeping a reasonable allowance for expansion. In estimating your requirement of fixed assets, consider the capacities and their respective costs involved. This could be further subjected to a careful consideration of the pros and cons of the following factors:

• Consider the option of building or fabricating the buildings/machinery/equipment concerned on your own or by employing contractors rather than purchasing from outside.
• Purchase used items instead of brand-new.
• Negotiate for the most favorable payment terms in all instances.
• Take on lease instead of purchasing outright to spread the investment over a larger number of years and to conserve working capital in the short-term.
• Consider the now popular chattel mortgages for motor vehicles, with their attractive tax and cash flow benefits.
• Consider renting space rather than building or purchasing building space.
• When it comes to replacement of assets (where you are already into the business for quite some time) consider refurbishment as an alternative to replacing with new items. Assign adequate weighting to the possible benefits accruing to the organization in virtue of advanced technology behind newer models as against the possible obsolescence of your existing ones.
• If your buildings are too spacious for your requirements, convert excess space to money by renting out. In the alternative, utilize excess space for undertaking sub contract work.
• Similarly, outsource or lease out underutilized vehicle/machinery/equipment capacities; or utilize them profitably for doing sub contract work for outside agencies.
• As you reach your optimized capacity utilization levels, don’t rush to purchase new fixed assets to meet additional orders. Try outsourcing and sub contracting out initially until new orders reach levels to warrant the consideration of any additions to existing fixed assets. The policy should be to defer new additions rather than advance them.
• Periodically monitor the efficiency of plant and machinery layout for maximizing production and minimizing production costs. Have a system in place for the constant monitoring of capacity utilizations of all plant and machinery. This will help you in the timely detection of any idle, underutilized or redundant equipment as well as white elephants (if any).
• Dispose of all excess and uneconomical fixed assets.

• A sound system of fixed assets managements should take in to account the accident proneness and possible hazards faced by their operators and others who have to move in their immediate vicinity. Have all necessary safety precautions also incorporated at the time of installation itself of new plant and machinery.
• All motor vehicles, fixed plant and machinery as well as all movable or immovable equipment etc. should be assigned to the care of one or more specified employees. Those specified employees should be held responsible for maintaining them in good order by adhering to proper and timely maintenance schedules. The whole operation should come under the surveillance of a senior engineering manager.