How to automate workflows so you can focus on your business

If you’re wondering how to automate workflows, chances are good that you’re exhausted with your current approach to running your business.

Maybe your typical morning looks a little something like this: You have your sights set on tackling one of your biggest business priorities. Let’s say you’ll be ironing out the details of the new service you plan to offer.

But first, you get sucked into your inbox and respond to dozens of emails. Then you get saddled with some data entry. Next, you need to resolve a customer support issue that keeps coming up. Before you know it, it’s three in the afternoon and you haven’t even touched the strategy you wanted to hash out today.

Sound familiar? We thought so—and it’s proof of the value of workflow automation.

What is workflow automation?

Workflow automation is when you identify a repeatable pattern of tasks and then use technology so that business process can happen without you.

Automation sounds complex and intimidating, and a whopping 73% of U.S. adults fear that artificial intelligence will eliminate more jobs than it creates. However, automation doesn’t need to be complicated. Many automated workflows can be accomplished in two simple steps.

For example, imagine that someone fills out the contact form on your business website. An automated workflow could take that response and automatically create a task in your project management software.

See? That’s a simple business workflow, but it removed a manual step from your own plate.

The benefits of workflow automation (hint: you’ll save time)

Process automation is all about reducing the amount of repetitive, manual processes that you and your team are responsible for. In and of itself, that removes bottlenecks, streamlines your systems, and keeps work moving forward.

But that’s only the tip of the iceberg. Let’s look at some of the other big benefits of workflow automation.

1. Workflow automation saves time

You spend more time than you think on repetitive tasks that could be automated. In fact, the typical office worker spends one-third of the working year on these types of administrative responsibilities.

As a business owner, these types of time-consuming tasks cut into the hours you could invest in working on your business—rather than in it. Research from The Alternative Board found that business owners spend only about 32% of their time working on important business development activities.

Process automation will save time and eliminate inefficiencies, so you can spend less time on mundane tasks and more time growing your small business.

2. Workflow automation reduces human error

Automated workflows happen without you. You’ll set up templates and other business workflows so that manual tasks occur reliably without your input.

Not only does this free up time, but it also reduces the possibility of human error. After all, you aren’t perfect, and you know that little mistakes can lead to a whole bunch of headaches.

For example, imagine that a customer submitted a question via email. You forgot to pass it along to the right team member, so that customer has been sitting without an answer for days—or even weeks.

With an automated workflow, that email could’ve been automatically directed to the right person, who would’ve been notified that a response was needed.

3. Workflow automation ensures consistency

Related to the above, automation also makes your business processes more consistent. When you’ve set up the automation, it happens reliably again and again—the exact same way.

No more worrying that one member of your sales team logs an entry in an Excel spreadsheet one way, while another employee does it completely differently. By cutting humans and real-time input out of the equation, you ensure greater cohesion of your repetitive tasks.

4. Workflow automation improves your culture

Some grunt work is unavoidable, but if it’s making up the bulk of your employees’ responsibilities, they’re bound to become frustrated. They want to do more than take care of mundane and mindless tasks.

Automation frees up more of your employees’ time so they can focus on job responsibilities that adequately use their skills, passions, and creativity.

Not only does this improve company culture, it also helps your business thrive, because you’re getting the most out of each member of your staff.

The building blocks: 3 basic components of a workflow

Your eyes have been opened to the perks of workflow automation. But how do you get started with streamlining and systemizing your own business processes?

Let’s start with the basics of a workflow. As digital workplace Kissflow explains, the basic components of a workflow are:

  • Predefined steps: This is a predetermined sequence of tasks that makes up the workflow.
  • Stakeholders: These are the people who carry out the various tasks in the workflow. Note that, in some workflows, steps are completely automated and don’t need an assigned stakeholder.
  • Conditions: These are the rules of the workflow that explain when a certain step should be taken.

Here’s a simple example of a workflow using these three components. Maybe you’ve turned your attention to your human resources processes, and you’ve noticed that you’re frequently answering the same questions from job applicants.

You decide to implement the following automated workflow: When an interested candidate submits the job application form on your website, they automatically receive an FAQ-style email that thanks them for applying and provides answers and links to helpful resources.

Within that workflow, your predefined steps are:

  • An applicant submits the application form on the website.
  • The FAQ email is sent to the applicant.

This process will happen without human intervention, so there isn’t a stakeholder. The rule is that the FAQ email will be triggered by the receipt of the application. – Read more

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What is ERP and how does it work?

Enterprise resource planning (ERP) software gathers all of an organization’s business tools in one virtual room to facilitate workflow and solidarity between departments. An ERP system helps to improve business performance through a number of different functional modules such as finance, sales, manufacturing, supply chain management, and human resources.

According to Gartner, the Enterprise Resource Planning market grew 8.8% to a value of $38.8 billion in 2019. As businesses grow and find the need to improve efficiency while maintaining a certain quality of service, ERP software becomes an attractive option. However, ERP systems can be costly and complex, and it is not uncommon for businesses to struggle with adoption and thus experience negative business impacts.

For these reasons it’s important to understand what an ERP is, the features these systems offer, and the tradeoffs your organization can expect from adopting one.

What is an ERP system?

An ERP system is a type of software used to plan and manage a range of business processes and tasks. Looking back at the history of ERP, these systems have evolved from paper-based scheduling models to today’s multi-modular computer-based systems.

Early history of ERP

The first recognized ERP was the Economic Order Quantity (EOQ) designed by Ford W. Harris in 1913. The EOQ was an inventory review protocol intended to help companies reorder at the right time to reduce inventory management costs. While brilliant at the time of development, this model assumed that demand, ordering, and holding costs all remained constant. Of course, no such assumptions are possible in today’s business environment.

ERP vs. MRP

MRP stands for Material Requirements Planning. This was the next major development in the history of ERP, when toolmaker Black and Decker computerized Joseph Orlicky’s MRP model in 1964. MRP was used to calculate the material and components needed to manufacture products.

In 1983, Manufacturing Resource Planning, or MRP II, came into use. As an extension of the original material resource planning model, MRP II software integrates other business functions such as general accounting, cost control, machine capacity, raw materials procurement, and demand forecasting.

Finally, in the 1990s, Gartner coined the term Enterprise Resource Planning to indicate the next evolution of enterprise planning software. Gartner defines ERP as a suite of business applications that share a common process and data model, covering a broad range of operational end-to-end processes. – Read more

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NOPAT: What it is and how to calculate it

My Post (23).pngNOPAT is Net Operating Profit After Tax. It shows a firm’s after-tax profits from day-to-day business operations. Analysts use the formula to compare business performance to past years, and to assess how a company is performing against its competitors.

This article uses an income statement to explain NOPAT, and to point out how the calculation differs from net income, EBIT, and other balances. You’ll learn how to calculate NOPAT, and how the formula can be used to make better decisions from financial reporting insights.

As an example throughout, meet Patty, the owner of Seaside Furniture, a manufacturing company. Here is Seaside’s 2019 income statement:

The income statement uses the term operating income, which also means operating profit. This discussion will use operating profit.
You’ll note that the operating profit formula ($200,000) differs from earnings before tax calculation ($184,000), and the reason for the difference helps to explain NOPAT.

What is NOPAT?

The NOPAT (Net Operating Profit After Tax) formula allows you to compare the profitability of two firms, assuming that neither business has any debt outstanding. This comparison is useful, because it focuses on profits from normal operations, without the impact of interest payments.

In 2019, Seaside had a $300,000, 6% loan outstanding, and paid interest expense on the loan. NOPAT removes non-operating income and expenses from earnings before tax. In 2019, Seaside had a $2,000 gain on sale of equipment, and $18,000 in interest expense, and both are in the non-operating category.

Non-operating activities

Non-operating activities are not generated from normal business operations. Seaside manufactures furniture, and selling a piece of equipment is not Seaside’s main business. Paying interest on a loan is also a non-operating activity.

As you see in the income statement, operating profit is calculated before the gain on sale and interest expense.

Comparing performance

Assume that Premier Furniture is a Seaside competitor, and also generated $1 million in revenue during 2019. However, Premier carried $500,000 in debt. You can compare the profitability of Seaside and Premier by using operating profit.

Let’s assume that Jill owns a $10 million furniture manufacturing business, and is considering a purchase of either Seaside or Premier. To assess profitability, an investor may use NOPAT to compare the two firms.

Operating profit reveals how each company generates a profit from normal business activities. Gains and losses on asset sales are unusual, and the level of debt may vary greatly over time. NOPAT excludes these variables from the formula.

The operating profit and net income balances are also different.

NOPAT vs. net income 

Net income includes all income and expenses, including taxes. Seaside’s net income includes the gain on equipment sale, interest expenses, and tax expenses. Operating profit does not include those three balances.

NOPAT vs. EBIT

EBIT refers to earnings before interest and taxes, and Seaside’s EBIT is slightly different than operating profit. Operating profit ($200,000) does not include the gain on equipment sale, interest expenses, and tax expenses. EBIT, however, would include the gain on sale, which would generate an EBIT balance of $202,000.

The NOPAT calculation includes the company’s tax rate.

How to calculate NOPAT

The NOPAT formula is (operating profit) X (1- tax rate). This calculation presents operating profit based on after-tax dollars.

Seaside’s 2019 calculation is ($200,000) X (1 -25% tax rate), or $150,000.

Is depreciation included in NOPAT?

Depreciation is included in the NOPAT calculation. Seaside posted $20,000 in depreciation, and the balance is included in total expenses. Note that depreciation is a non-cash expense. If Seaside pays $20,000 for a machine that is depreciated at a rate of $2,000 a year, the company does not write a check for the expense.

Some analysts prefer to use the NOPAT margin formula.

NOPAT margin

This margin is calculated as (NOPAT) / (Total revenue). The 2019 NOPAT margin for Seaside was ($150,000) / ($1,000,000), or 15%. The margin calculates the amount of profit earned on each dollar of sales. If a business can increase the margin, the firm is more profitable.

This formula is similar to profit margin, which is (net income) / (revenue). Seaside’s profit margin for 2019 was ($138,000) / ($1,000,00), or 13.8%. The profit margin ratio is lower, because net income includes more expenses than operating profit.

There are several reasons why NOPAT is a valuable tool for business decisions.

Why is NOPAT important?

NOPAT is a great indicator of how well a company uses assets to generate profits for core operations. Seaside can increase operating profit using these strategies:

  • Sale price: Increasing sale prices can increase profits.
  • Reduce costs: The firm’s $600,000 cost of goods sold balance, for example, includes material and labor costs. If Seaside can negotiate lower material costs or pay a lower hourly labor rate, profits will increase.
  • Gain efficiency: Businesses can work more efficiently by embracing technology. Accounting software can help a firm post accounting transactions and create invoices in far less time, which reduces costs.

The NOPAT formula removes the impact of debt, and the tax savings of carrying debt. The $18,000 interest expense reduces Seaside’s tax liability. If the company didn’t carry debt, the tax expenses would be higher. – Read more

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