Odimbite Odimbite: R, P, E – three letters for Corporate Smooth Sailing
RPE simply represents Revenue, Processing and Expenditure. Major functions of a business like sales, marketing and manufacturing can be measured and monitored using the RPE model. Support functions rarely see themselves as revenue drivers. Perhaps the traditional approach views them as cost centers whilst sales or marketing become revenue centers. Every business unit can drive for corporate excellence and sustenance using the RPE model.
Revenue is the survival tool of any business. Without sustainable revenue streams, any business will fold up. Revenue is recognized as income from sales of products, services or assets, royalties, rents, dividends, interest, goodwill sales, aids, grants, recovered bad debts, et cetera. A business must re-think its revenue streams; identify major revenue streams and the very obscure sources. Focusing only on revenue from sales of products and services is usually what gets top management attention. Other revenue streams aren’t considered much and so proper performance standards aren’t set nor its measurement consistently analyzed.
The meaning of revenue must be clear to the leaders of the business. How is revenue generated? When is the business said to have made money? Who are the drivers of revenue? What are the various sources of business revenue? Asking these questions may show that sales and marketing isn’t the only revenue drivers.
Finance can be a revenue driver in a business. Offloading toxic assets for cash can bring huge revenue. Disposing redundant and obsolete assets can bring additional revenue. There has to be a constant survey and analysis of what is toxic, redundant or obsolete so decisions can be made. Bureaucratic processes that limit sales of non-performing assets littering the business is one challenge businesses should find ways to resolve. Where the long term plan of a business indicates possible change of business direction or technology of manufacture, this may indicate that there will be asset redundancy or obsolescence. Finance should work assiduously with relevant stakeholders to implement a programmed asset disposal or transformation that will earn appropriate revenue for the business.
Disposing assets that are redundant or obsolete is different from asset stripping. Asset stripping is a business decision to sell assets for cash because the business is withdrawing from the market segment, country of operation or due to harsh operating environment. Essence of asset stripping is to move out or divest. Whether divesting or continuing operations, finance function could always a revenue contributor.
One major reason finance function is relaxed on this is because the business hasn’t set a major business objective covering this dimension.
Finance also plays a role in generating interest and dividend income depending on the cashflow of the business. Often a business may decide to invest excess funds in short term instruments or take up a stake in the shares of another company. In both cases, the finance function needs have a clear performance matrix that focuses on key deliverables. This is another revenue stream that is often overlooked and seen as only a windfall when it arrives. Businesses should plan this carefully and drive it through the finance function. Driving it seriously also puts the finance function on the alert and avoids unnecessary diminution in value which happens when attention isn’t given to key investments.
Shortening the sales conversion cycle and reducing days outstanding for credit sales to be converted into cash drives a more efficient finance function. The sales force may consummate sales but only on paper because generous credit terms were given distributors. Elongating credit collection periods puts serious strain on a business and finance should drive this to make it worthwhile with the understanding of the sales team. Finance functions should be adept at recovering business debts and converting them into strong revenues. The finance function that works along these lines has been re-tooled to think revenue first in its daily activities. Getting finance to think in this way is a major success milestone.
Every support function should be re-tooled to think of revenue first in daily operations. How does their activity bring or take away revenue? This thinking aligns all functions towards revenue and growing business revenue.
Processing refers to how revenue is collected, protected, recorded, stored and accounted for. Revenue losses can arise from poor accounting, uncoordinated collection, poor records, unsafe keeping and improper handling. Revenue is like an egg and should be handled with care. Internal and external procedures that assure proper processing should be developed, monitored and constantly updated. Revenue loss prevention should be a priority for all staff and support functions. It’s better to assure integrity of revenue sources that avert losses than to recover losses after a revenue loss has occurred. Collecting methods detailing who is responsible and when, will be useful in safeguarding revenue. All personnel involved in processing revenue across functional units should be trained to master the sources of revenue and the implication of any loss. A stringent condition that prevents loss is very useful for all staff involved in processing. Finance isn’t the only functional unit to be assigned the role of processing revenue. What’s the use announcing billions of dollars of revenue and yet such revenue never accrues?
Expenditures are closely watched at top management levels especially capital expense. Recurrent expenses may be controlled only for some line items. Every function spends money whether a cost center, profit center or revenue center. If revenues aren’t generated, expenses will be cut and sometimes very badly. Expenditures should be properly budgeted for, and approved. Operations function suffers most when operational budgets are cut whilst revenue centers get major concessions. Expenses despite where they come from are money eaters and should be adequately controlled and monitored to achieve key objectives from start.
Putting it together
The RPE model is a tool to re-think revenue drivers of any business. The expenditure side enables a business to see where the bulk of expenses is heading to and ask questions early enough to stay the course. Processing is useful for safe accounting of all revenues. These three put together and working well, creates a corporate excellence across departments and units. This excellence once it becomes a culture, makes the business thrive in the long term.
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