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The Seven Sins of OVER and UNDER in Business
1. OVER EMPLOYMENT
Over employment occurs when people gauge their own importance by the number of people required to report to them. The first sign of over employment is when a manager requires that his assistant have an assistant. The result is that the amount of paper work for approvals bears no relationship to the importance of what has to be processed.
2. OVER LEVERAGED
Over leveraging generally occurs in a positive economic climate or in periods of extreme optimism. People believe that no matter how much they borrow, the business will always improve and grow enough to support the debt service they will incur. However, a downturn in the business cycle is likely somewhere along the line. Suddenly, the payments on the new building and new equipment are very difficult to meet. From that point on, even financing operations becomes almost impossible.
3. OVER EXPANSION or OVER SELLING
Over
expansion occurs when a company commits to more space and more equipment
than its business can reasonably assure will be there to support
it. It is most common in businesses where there is no guaranty that
orders received from customers will be repeated. Gearing up to meet
or anticipate demand is problematical. When the company runs into
a dry spell, there is no money to pay for additional fixed overhead.
Overselling occurs when salespeople take orders that the factory
can not fulfill because of production or other problems.
4. OVER EXTENSION
The company has rather short terms from its suppliers, but does a good job of selling, in part by extending longer terms to its customers. It purchases all of the material necessary to do the job, usually accompanied by a build up of inventory that also has to be paid for and may not be used for some time. Depending on the business, the inventory might not be needed until the next season (e.g., snow blowers, fur coats, or air conditioners). The poor cash flow means that the business may have to deal with the type of lender that takes an exorbitant charge. When the company is finished paying these charges, it usually finds that it is working mostly for the lender.
5. UNDER QUALIFIED
When management thinks of a position (usually the administrative staff) as an expense instead of a profit center, it proceeds to define the responsibilities and skills of that position inadequately. Then it decides how much it wants to pay for the position. The resulting hire usually performs poorly.
6. OVER SIGHT
There are companies that pride themselves on running a lean business. No excess expenditures or superfluous employees. When there are also no controls, the consequences can be devastating. If employees believe they can steal with impunity, they will -- especially if your company's products are consumer-oriented and easily transported and sold. It is therefore necessary to make sure that proper inventory controls are instituted and all shortages accounted for.
7. OVER CONCENTRATION
When a customer accounts for too large a proportion of sales, company success or failure may depend on that customer. If the customer knows how critical it is to your sales volume, it may tend to try to drive prices down, or demand preferential treatment on deliveries. In addition, if that key customer is sold, changes its product mix, or just changes its mind, your company can suffer irreversible damage. |
