Three Steps to Predictable Financial Results
If you lay awake at night worrying about what next month’s financial results are going to be, there’s a three-step approach that will help you get, and stay, asleep. Highly predictable businesses subscribe to a “control, profitability, growth” philosophy. While this philosophy sounds very simple, it is sad how few companies practice it.
Simply put, a business needs to be under control and understand how and where it makes money before it grows. Time and time again we see businesses get these steps out of order and end up with serious unintended consequences of significant financial losses.
We worked with a manufacturing company that had been recognized as one of Inc.’s fastest-growing companies three years running. While sales growth was impressive, the bottom line began deteriorating at a rate faster than sales were growing. The company ended up losing money and went into work out with their bank. It was at this point we were engaged and ultimately orchestrated a successful turnaround that lead to a sale. The company focused on growth but didn’t understand their product profitability. As a result, their bids didn’t have adequate margins and a lot of pain was incurred that could have been avoided!
Control doesn’t mean one person makes every decision. It’s quite the contrary. Control is achieved with business systems specifically designed to help protect your company from careless, costly, or uniformed decisions or behaviors.
Profitability requires a deep understanding of how and where your company makes money. Your income statement from QuickBooks is just a starting point. Customer and individual product/service profitability must be well understood.
Once your company is under control and your profitability is well understood, you are ready to grow. Growth requires knowledge of your market and competition and where you can leverage or need to establish competitive advantages. There must be a proactive business development process with defined target markets and profiles of profitable, target customers.
Following a “control, profitability, growth” philosophy will make your company easier to run, increase profits, and create more enterprise value.
In the coming weeks, we will explore each of the control, profitability and growth topics in more detail.