Are You Efficient?

If you ask a business owner whether a business would benefit by becoming more efficient, most entrepreneurs will respond with “YES” without hesitation.  From this enthusiastic response, you may conclude that a business should work to become the most efficient business in the market.

Keep in mind, however, that efficient business operations will always be an elusive, often unattainable goal.  You company changes, matures, improves, and rebuilds in response to market forces.  So, any efficiency gained today could be eliminated by adding a new product tomorrow.  Therefore, your level of success will depend on your continuous attempt to achieve targeted goals for your company not ultimate efficiency.

This is not a good condition or a bad result – it’s business.  Change is not an option, but your response to change is.

What has been your experience in trying to bring efficiency to your company?  Did you establish a measureable target?  Did you achieve the target?  Did you modify your approach or abandon the project?  Feel free to leave some questions here for others to respond with their insight.

Having trouble Creating a “Unique Value” For You Commodity Product or Service?

Ever wonder why Florida-brand Oranges are better than oranges from California or Louisiana? The commercial indicate that there is a difference, so what do you believe?  The sun is the same; the mild southern climate is the same; the water is the same; the fertilizer and soil conditioners are the same.  So, the next time you are tempted to buy “Florida Oranges,” consider how you can improve your marketing campaign.

Brands Add Value

If you sell products in a highly competitive environment, you may feel that you have limited options to separate your products from others in the market.  Keep in mind that your statements must be true and verifiable and your brand must offer something of value to your customers to be effective in selling more products/services. So, here’s some food for thought for companies that sell commodity items (shrimp, fruit, gasoline, socks, etc.)

You can “Brand” your product to stand out from the crowd.  Alternatively, you can ask your industry trade association to create a brand for products sold by the trade group’s members.  Brand benefits for commodities typically are based on the consistency in how you produce, deliver, sell, and/or support your products.

When you purchase Shrimp, do you know if they were caught in the Gulf of Mexico, the Pacific Ocean, or a Brazilian shrimp farm?  Given the option, most people would you buy locally harvested shrimp over foreign shrimp…if the products were branded correctly.  (Currently, there is an effort to brand shrimp with their origin so that customers have a choice.)

How is your industry helping you to differentiate your products?  What messages do you promote about the unique value of your products?  Do you deliver only “fresh” produce?  Do you sell only items that meet a minimum size?  Do you package your items in a way that keeps them from damage during shipment?  Do you offer products “in season” only to ensure that they are not created under artificial conditions.  Do you meet the needs of large buyers who demand high quality products?  Do you rate your items as:  a) High Quality, b) Standard, and c) Discount so that buyers know the quality of their purchases?  Use the concepts of Integrity-based Leadership to help you identify the unique value proposition for your products and services, whether you sell socks or airplanes.  That way, you can guarantee that your brand is valuable.

Are You ready to implement Integrity-based Leadership in your Company?  Call us Today at (504) 780-9091.  Let’s discuss your needs and where you want to be over the next year.

 

Profitability Equals Sustainability (Part 2)

Last time, we presented the concept of profitability as a measure of sustainability.  So, how do you calculate the amount of profit needed to achieve sustainability?  Keep in mind that in order for a company to be sustainable, annual profit must be enough to cover the three measuring points:  Owner’s Compensation, Return on Investment, and Reward for Business Risk.

 

Compensation:  What would you pay someone to perform the daily operational tasks that you perform?  Operational tasks are:

  • Functions that you should be delegating because they are recurring,
  • Activities that are necessary to sell and/or deliver product, collect cash, pay workers, etc.
  • Assignments that much larger organizations assign to Managers or Supervisors, or
  • Actions that keep your business on track (as opposed to actions that create change)

Return on Investment

This is calculated by taking your total equity, subtracting the current net profit for the period, and multiplying that resulting amount by a percentage rate.  The percentage rate is your estimate of what a potential investor would use to justify purchasing your company.

Reward for Business Risk

This is calculated by taking your total sales for the period and multiplying that amount by a percentage rate.

This is actually the most difficult calculation, because the better you design your company to be safe or to mitigate risks, the smaller the percentage rate that you will use.  So, a chemical refinery may use a higher percentage rate than an accounting firm.  The percentage rate is your estimate of what a potential investor would use to justify purchasing your company in your industry.

The difficulty is calculating the sustainability rate is that your growth does not impact the percentage rate over time.  So, 15% of $500,000 is $75,000 and 15% of $5 million is $750,000, but both amounts represent a 15% reward for business risk.  If you do not improve your safety as you grow, you cannot justify a smaller reward rate just because the number is larger at higher sales levels.  As a result, sustainability becomes more difficult at higher sales levels unless you manage your resources more effectively.

How do you determine profitability in your company?

Profitability Equals Sustainability (Part 1)

If your company made only one dollar in net income last year, many would say that your company had a profit.  The ugly truth is that your company must earn more than minimal profit in order to stay in business for one more year.

Being profitable means that you earn

more than the minimal level of profit each year

Profitability is equal to Sustainability because companies that are profitable qualify for bank loans, can negotiate better inventory costs from suppliers, and attract investors or partners (so you can retire with dignity and an income).

So what is the minimal level of profit for your company?  That is the hard question that YOU must answer, because no consultant can know the right answer for you.  Anyone who tells you the answer is, at best, projecting the “right” answer for himself/herself.

Your minimal profit consists of three parts:

  1. Reasonable compensation for your work in the business.  (What would you pay someone else to do what you do every day?)  If your role is pure leadership with no operational duties, you do not require compensation because you will earn greater profit.
  2. Return on Equity for the money you invested in the business (After all, you could invest in a bank certificate of deposit and earn interest without any effort, skill or stress.)
  3. Reward for Business Risk you take every day (i.e., risk of lawsuits, risk of customer non-payment, risk of chemical spills that disrupt your operations, etc.).

So, if you want to know the “right” answer, then ask a potential investor what he/she would need in each category in order to justify buying your business.  Remember, your business is worth what someone is willing to pay for it in a fully negotiated agreement.

What is your measure of Profitability?  Share your ideas and let is all build a better economy. Check back next week to learn the author’s method to calculate Profitability.

Leaders Help Others Succeed

Leadership is about helping others to succeed by accomplishing a common goal.  Learn to remove your ego by focusing on others first.  Every time you use the word I or me (instead of you or we), you force workers to question their loyalty to the company.  

Inspire Your Staff and They Will Ensure Your Success

A Leader is someone who inspires the support of others to achieve a common cause.  Is there a common cause that your staff is working toward?  How do you know?  How will each team member benefit when the goal is achieved?  Once you answer these questions, your staff will help you build corporate success.

Call us today, increase profits tomorrow (504) 780-9091. Your call is confidential and there is no fee for this introductory conversation.

Success

If you want your business to improve, you have to change the way you operate your business.

You can’t do today what you did yesterday and expect tomorrow to improve.

Call us today, increase profits tomorrow (504) 780-9091. Your call is confidential and there is no fee for this introductory conversation.

Ready for the Next Level?

  1. Do you manage your business because only you can make the hard daily decisions?
  2. Do you spend time “In the Trenches” because only you can stop problems before they start?
  3. Do you believe a Manager is a Leader?

Once you’re able to see a different path, then you’re ready to take your company to the next level.

Call us today, increase profits tomorrow (504) 780-9091. Your call is confidential and there is no fee for this introductory conversation.

Maximize the Success of your Business

Integrity-based Leadership is a framework that we developed to maximize the success of your business.  Here is the communication component of the framework:

Tell everyone what you expect, how you expect it to occur, why it’s important, and how it improves everyone connected.  Build Integrity-based Leadership into your company and you’ll know almost immediately who is with you and who will challenge the success of your business.   Call us today, increase profits tomorrow (504) 780-9091.  

Your call is confidential and there is no fee for this introductory conversation.