You’ve stated, as a business consultant, your experience shows that a majority of small and mid-sized business owners throw away 10 to 30 percent of revenues without knowing it.” What is the biggest mistake these business owners are making to throw away revenue?
It’s not so much as making a mistake as just not knowing how to measure the performance of their business over time. What to measure and how to measure is the key.
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You say that many small business owners don’t have the necessary skills to analyze their financial statements. Aren’t there professionals who can do this for them or are those professionals missing something, too?
There are many professionals such as CFOs, and consultants, that can do this for them. However, the real issue is that the business owner should know how to measure and manage performance. Without that knowledge, the stronger competitors (those that know how to measure and manage performance) will inevitably drive them out of business. Think of it this way: how many ships would reach their proper destination if the captain outsourced steering the ship – or worse yet, didn’t know how to do it himself?
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It sounds too good to be true, but as a former business consultant, you’ve said 95 percent of your past clients, on average, could easily, at the very least, double their bottom line with very little investment of time and money. Can you expand on that?
Let’s first clarify that on a consulting basis I worked with companies that needed help. I found that an average small to mid-sized company leaves an average of 15 percent of their revenues on the table but I’ve seen it as high as 30 percent. On average they earn approximately 10 percent or less in profit. The math is simple. Say a company has $1,000,000 in sales and profit of 10 percent or $100,000. Add 15 percent of the sales to the profit and you have $250,000. Knowing where to look for the cash leakage – and then know how to plug the leak – is of utmost importance for any business owner. As a matter of fact, I believe that continually measuring the company’s performance and making operational, organizational and strategic corrections is the most important responsibility of the owner. Once the measurement is done low hanging fruit generally presents itself and initial corrections are fairly painless. During my consulting days, with the help of financial friends and many reference manuals I developed a software application that I called CFO Genie which quickly did the calculations for me. Because the software was so easy to use and understand, my clients kept asking if I would sell them a copy of the software and eventually realized I would be serving a larger number of business owners by offering a course on the fundamentals of measuring performance and the formulas used. Now, these aren’t my formulas. Any trained financial expert uses these formulas every day. All I did was to package it in an easy to use format for the financial lay person – so to speak. The workshop ‘Detox your Business’ simply shows business owners what to measure and how to measure it. They get the formulas and see the results of a sample analysis – step by step. Although I use the software during the workshop for expediency, participants won’t need the software to do an analysis of their own.
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Why do business owners tend to drift away from the best practices that got them off the ground? Is it a case of they listen to consultants and get off their proven path?
It has nothing to do with consultants. In most cases these businesses have never had a consultant’s assistance. To clarify, we are not speaking of best practice. We are speaking of their own historic best practices. Let’s bring that into perspective. When a company begins growing their revenue, or top line, it typically causes certain internal costs to rise. Over time this becomes a cash leak – usually a very small leak at first. It’s so subtle that it goes unnoticed to anyone who’s not measuring it. It begins to add up and one day the company finds itself in financial trouble. So, the average business owner, who isn’t measuring performance, believes the answer is increasing sales – which in turn causes greater internal costs – or larger leaks. The spiral continues. One of two things will happen at this point: the owner brings in a reputable (and at this point – usually expensive) consultant to help turn the company around or – the company goes out of business. Hopefully it’s the former and the owner realizes he/she needs to learn a new skill: measurement. Anyone can sign up for a Detox Your Business workshop being held on Sept. 17 from, 7:30 to 10 a.m. at Post University Institute for Innovation and Entrepreneurship by going to http://postuniversity0917.eventbrite.com or contact me directly at max@ceo1stop.com for schedules.
