Peter Drucker (the famous management guru) once said, “you can’t manage what you don’t measure”
Do you want to know what the secret sauce of increasing business profitability is?
Whether you are a CPA wanting to create a consulting practice or a business owner wanting to effect change, the secret sauce of both is creating AWARENESS.
I’m an avid reader. I prefer non-fiction or NOT FAKE (How I always remember fiction from non-fiction – NF = Not Fake) and there’s a common denominator in all of them when it comes to effecting business profitability… obtaining financial awareness.
Moreover, I’ve consulted many small and medium sized businesses that were having all sorts of financial issues including, but not limited to:
Cash flow issues
The list goes on and on…
And during these consulting engagements, we would roll up our sleeves and review project profitability (to extent possible, sometimes internal accounting was just bad), staff productivity, cash-flow management and then we would have tough conversations about what the next three months were going to look like based on that information…
In one situation, I remember forecasting that the business had until November before it ran out of cash and we were in August!!
Nonetheless, it was a tough and direct conversation.
But we made changes which included:
- Cutting losses (we determine to let go non-productive people, this usually represents 20% of your labor pool on average)
- Focused on high-margin projects, volume didn’t matter
- Better inventory management, there was a lot of waste here
And you know what happened?
The business improved.
It improved significantly.
Like a $500,000 profit improvement.
Looking at the situation, it’s easy to make the mistake that the root cause of solving these problems were all the changes that were made… but I would disagree.
The reason change was effected was because the business owner sat down with the CPA (me) he hired and went through the numbers.
The CPA showed him where he was losing and needed to improve.
AWARENESS was the key.
Of-course the tactical things mattered, but without AWARENESS, nothing would have happened.
Just try it.
Do you feel like you aren’t as profitable as you should be?
Do you feel like you can improve?
Then find out what the reality is.
Ask me, ask your CPA, ask someone where you should be.
Oftentimes this will be expressed as a benchmarking exercise, where your KPIs will be assessed and measured against your reality.
Have you ever received bad news from the doctor that your blood pressure was too high, or some other KPI with regards to your health was out of whack?
What happens, you figure out what you need to do to improve… and you do it! (of course, some people don’t and suffer the consequences), but the average person will do what they need to do more times than none…
So the secret sauce is –
AWARNESS + GOALS/ACTIVITIES TO HELP SITUATION + FEEDBACK/REPORTING = CHANGE.
It is really that simple.
Want to know more? How would like you like to have a strategy session with me? You can schedule a strategy session by CLICKING HERE.