SCVBJ Contributing Writer
Profits are much more than increasing revenue and keeping costs down.
There are ten elements in your profit zone, and I am going to address five this month and the rest next month.
The first element is having an engaged workforce. If employees have “checked out” (meaning disengaged), profits will suffer but not before everything else does, starting with quality, service, customers, and morale of other employees.
Employee engagement is determined by factors such as: feeling clear about role and responsibility; knowing the value contributed to the team; having opportunities to do what a person does best; having opportunities at work to improve; enjoying strong coworker relationships; working with a common mission or purpose; and, believing that whomever you report to cares about you.
You address this challenge by looking first in the mirror at yourself and then by taking a long, hard look at your managers. Employees leave managers, not companies.
Second, as CEO, understand your company generates revenue with three levers. First, increase the number of customers. Second, increase the number of customer transactions. Third, increase the dollar amount of the transaction.
You must proactively and regularly address these three if you want to continually and positively impact profitability.
Third, do you have a strategic plan and how focused are you on executing it? Without a firm focus on executing your plan, profits may remain elusive.
Execution is your job as the leader. Execution is a discipline and integral to strategy. Execution must become a core element of your company’s culture. Execution is a systematic way of exposing reality and acting on it.
If you fail to achieve goals, look first to the failure to execute the plan. You must hold people accountable for getting things done.
Fourth, do the people in your company know how the company makes a profit? If you keep this information secret, you are the only person trying to make a profit when you could have every employee helping you.
Can your employees identify and understand your COGS (cost of goods sold) or COS (cost of sales if you are a service firm)? Have you taught them about the levers of volume, price, and cost?
And, are you running your company by relying on a standard Profit & Loss statement that only tells you what happened 30 days ago? Driving ahead while looking in the rear-view mirror is a recipe for a disaster.
The fifth element is cash flow. Cash flow ≠ income. Cash flow is the relationship between when money comes in and when it goes out of your business. Since most people no longer reconcile their checking accounts, if you want your employees to understand the critical importance of cash flow and cash management, you will need to teach them.
But first, how often are you tracking cash flow? You should be tracking it as often (daily? weekly? monthly?) as you require to be comfortable. And, if you make it clear to your employees that cash is so important that you constantly have your eyes on it, they will quickly start to pay attention to their impact on it.
Your mantra needs to be “Cash is king!”
And, never lose sight of the fact that many companies have gone out of business with a strong revenue stream because they ran out of cash!
Ken Keller is an executive coach who works with small and midsize B2B company owners, CEOs and entrepreneurs. He facilitates formal top executive peer groups for business expansion, including revenue growth, improved internal efficiencies and greater profitability. Email: [email protected]. Keller’s column reflects his own views and not necessarily those of the SCVBJ.