Know The Gray Areas, Or End Up In The Red
By Darryl Padgett
In past "Shop Financials" columns, I have talked about several things companies can do to automate their businesses that will improve their profitability. I have talked about ideas that, if incorporated into a business, will give crucial information for the decision-making process on financial issues. I mentioned statements like, "If you cannot measure it, you cannot improve it" and "Things that are measured tend to improve; things that are not tend to diminish."
In a column last year ("Shop Financials," Nov. 2000, page 40), Frank Fingers, a business owner who grew his company from a one-man shop to a $50 million company, mentioned several characteristics that are consistent with all successful companies. These characteristics are what this month’s article is about.
Do you have gray areas, or are the issues you deal with on a day-to-day basis only black and white?
It has been proven that successful companies do not have gray areas. They only have black and white areas. Gray areas are those elements of your company’s operation you believe are not that important. They don’t need your attention; they have little or no impact on the bottom line. Can you say, "I don’t care about that part of my company," or "I don’t think it is important?" It may be just one thing or it can be several things that you believe are of little or no consequence to the bottom line, but it is this mind-set that either diminishes the profitability of the company and/or creates the momentum for going out of business.
You may believe doing cycle counts on inventory is unimportant, or using purchase orders is unimportant; it can be that you believe tracking labor revenue, billed hours or employee efficiency ratings per employee is not needed at this time.
If, as an owner, you believe that allowing an employee to sign checks to vendors is not an issue, or if you believe inventory discrepancies are not important, or it would be too complicated to find out what is going on, you have gray areas.
If you believe your company is too small or too large to pursue these things; if you believe knowing your cost per hour is too complicated; or you believe you can look out onto your shop and know all that is going on; if you believe your general ledger is for the accountant only; or being able to read and understand your income statement and balance sheet is not important; if your ego drives decisions for the company rather than being driven by the first priority which should be making a profit; if you believe the appearance of the company or the way employees answer the phone isn’t important; these and a thousand similar statements all mean you have gray areas.
And, if you believe gray areas don’t matter, you’re wrong!
These gray areas provide the greatest opportunity to go out of business or greatly reduce the profit potential of your company. The successful owner is interested in everything that improves the efficiency and profitability of the company, no matter where it comes from. It is a great thing if employees take a concerned role in these improvements.
A company needs to be balanced to run smoothly. There have been two main aspects of business covered in previous articles, automation and finance. These are key factors that can make a company successful. But there are seven elements all together that make up a successful company. If you know these and keep them balanced, you cannot help but be successful – this is a promise.
The following statement will undoubtedly offend any owner who has gone out of business: "It didn’t have to happen." There were definitely gray areas in your business. Your competitors may not be at the level of competence they need to be, but they are at a higher level than your company if you are the one that went under. The seven factors mentioned below, if balanced, will sustain and maximize your company profitability.
Any business that is concerned that going out of business is imminent, or even a possibility, should act now. You must be pro-active with employees, customers and vendors. You can change the situation. This market is far greater than you may think. Yet at the same time, it will only support a certain volume of business and will not tolerate incompetence.
The successful company has all seven elements balanced at all times – it is the secret to success. They are: Automation, Finance, Employees, Customers, Products and Services, Sales and Marketing, and Innovation.
Does your company have processes in place that promote efficiency? Does it take more than a few seconds to enter a new customer into your customer database or recall any information about a customer’s work history? Do you have to record the same information twice for any customer at any time? Do you have processes in place that automatically accumulate the hours billed and worked per employee on all jobs?
Can you pay the bills on time each month or do you have to juggle them to see who gets paid? Are you able to take vendor discounts for early payment? Can you provide wages necessary to maintain the best qualified work force? Can you purchase new equipment for replacement or expansion when needed?
Do you consider your employees an asset or a liability? Are they motivated to work with you because you have given them both responsibility and authority to get the job done? Have you shared with them the knowledge of what it takes to be successful? How much employee turnover does your company have?
Does each of your customers know he or she is important? As soon as they walk in your door, do you make them feel welcome and are you able to service them quickly? Do you give them confidence you will not abuse them or take advantage of them when issues arise? Do they positively know you want their business, now and in the future?
Products and Services
Does the array of products you offer to customers through your business reflect a desire to service them completely? And are the relationships you have with vendors the kind that perpetuate a good working partnership?
Sales and Marketing
How successful are your marketing efforts? Do you even have any? Just like having the ability to measure labor efficiencies of the company, you also need the ability to measure the effectiveness and success of your sales efforts.
How creative are you at coming up with new ideas? Are you more creative than the competition? Do you develop plans that make it easier for your customer to do business with you?
If all seven factors are in balance, the company can expect to have a profitable, growing business. If they are not, you can expect to have problems. For instance, if your sales and marketing effort exceeds the ability of your company to absorb more work, it would actually hurt your company’s profitability.
If neglected, most of these factors will kill companies. How much money and time do you spend in the seven areas? You have to decide to eliminate gray areas and have only black and white issues if you hope to make your company a success.