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Tuning up your profitability outcome
March 31, 2014 | By Neil Ducoff | No Comments
When no-compromise leadership targets the profitability business outcome, it does so with a by-the-book discipline. That means that fiscal responsibility is practiced at every level of the business, from the leader and the leadership team to every salesperson, service provider, assistant, guest services representative and maintenance worker. Everyone pushes the numbers in the right direction. This becomes a culture in which everyone is responsible – everyone is accountable. Waste or cost without purpose is unacceptable.
Just as you can see, feel and measure a business with a high-performance productivity culture, so too you can see, feel and measure a business with a high-fiscally responsible culture. It doesn’t mean the company is “tight” or “penny-pinching”; it simply means that purpose and discipline are the rule with regard to how it deals with money, spending and cash-flow management.
Here are some no-compromise profitability outcome strategies to get you going:
- Can you read and understand every line item on your financial reports? This includes your Balance Sheet, Income Statement and Statement of Cash Flows. If not, what’s your plan to learn how? This is non-negotiable.
- How often should you receive complete financial reports? If it’s not at least monthly (that’s only 12 sets of financials a year) it is not often enough. Weekly is better, and I’ll explain why later.
- How much time lapses from the end of the month until you receive your financial reports? If this exceeds two weeks, it’s too long. Find out where the roadblock is and address it. If you have an in-house accounting department, there’s no excuse not to have timely reports within days after the end of the month. Any good in-house accounting software and a competent bookkeeper should be able to produce timely weekly financials. This is non-negotiable.
- Do you have a cash-flow plan that guides your revenue targets and expense budgets? If not, why not? Financial reports tell you the score during and after the game ends. Your cash-flow plan is your financial playbook. Follow the plan, be fiscally responsible and your financial reports will show a healthier company. You simply cannot grow a business without following a cash-flow plan. The plan is a “best guess”. The more you do it and work your plan, the better you predict the future. That is non-negotiable.
- Do you have weekly cash-flow planning meetings? If not, why not? Having a cash-flow plan is pointless without comparing it to actual revenues and expenses. Are you over or behind projections? Why? What do you need to do today or over the next week, month or quarter to get back on track? This is why I prefer weekly over monthly financials. I don’t want to discover a problem at the end of the month that we could have fixed or avoided.
- Who attends your weekly cash-flow planning meetings? (I hope you’re still not stuck on the sharing numbers thing.) All leaders need to be present. In larger companies with many departments, separate cash-flow meetings focusing on numbers key to that area need to be held weekly.
- Do employees know the score? If your response to “Hey boss, how are we doing?” is something like, “Not good enough,” the people responsible for doing the work have no idea what’s going on.
- Does your company require purchase orders to control spending? If not, why not?
- Is your payroll percentage under control? What is the ideal target payroll percentage for your company? What will it take to achieve and maintain that target?
- Are your inventory levels under control? Money tied up in excess inventory is a cash drain. What’s the plan to rein it in?
- If you’re a retail business, are you controlling inventory levels and turning your inventory as often as you need to? Slow inventory turns in retail kills cash flow.
- As the leader of your company, department or division, are you setting the right example to create a fiscally responsible business culture? If not, why not?
There is no debating that the profitability business outcome begins with the right culture. Creating sustainable and predictable profitability begins with the right discipline and behavior at the leadership level. It cannot be faked or given lip service. The no-compromise leader lives it, inspires it and relentlessly builds a culture to support it.
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