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.

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.

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.