Every business leader’s goal is to produce a profit and provide a standard of living that is acceptable to the business owner. Whether you are an aluminum die casting manufacturer or a service provider, there are standard tenets of business that all companies must abide by in order to succeed, according to Gregg Steinberg, president of International Profit Associates, a leading North American consulting firm.
Smart Business discussed managing a profitable enterprise with Steinberg.
What are the keys to building a successful business?
In order to build a successful business, it is necessary for the management, ownership and employees at all levels to be able to measure and monitor daily activity and performance against set quotas and goals. To do that, key benchmarks and matrices must be trended in each individual operating unit of an organization.
Consistent trending analysis then dictates the ability to create realistic goals and quotas at all levels. Performance then must be measured against this data on a real-time, day-by-day if not hour-by-hour basis. This allows all levels of management and ownership to control revenue, profitability, cash flow and ease of operation in a meaningful way every day. Regardless of whether you are an entrepreneur running a fledgling business or a manager operating a global enterprise, this rule applies.
In addition to benchmarking a business, what are some other keys?
While benchmarking and setting key matrices are tangible issues which can be traced back to successful management tools, there are also keys to running a business that create a competitive advantage that link to a more intangible view. These key intangibles are tied to management’s vision and mission statement. Management’s vision is their long-term strategic and organizational view of the broad picture and what they want the organization to become. The mission statement is the roadmap that ties the organization’s operating methodologies and procedures to long-term vision. While vision and mission may be intangible on their face, they lead to tangible methodologies, systems, procedures, corporate activity, corporate governance and other internal tangible processes. In addition, vision and mission also create the external view of a company and what its public persona is outside of the organization’s corporate walls.
Clearly, for an organization to be successful, it must have a full compliment of tangible and intangible resources defined by management and utilized at all levels of the organization in such a manner that it defines daily corporate culture.
Explain the difference between managing for profit and managing for cash flow.
In the early stages of an organization’s development, cash flow is king. While it is certainly always a key component that must be managed closely, early stage companies most often fail because of lack of it. Profitability, on the other hand, while certainly necessary for the long-term viability of the company, is not necessary for short-term survival.
Certainly, many companies produce little or no profit but manage to stay in business anyhow. While many companies manage based on checkbook balances and cash availability, long-term survival is dependent on an enterprise being able to generate a reasonable profit, which, in turn, generates cash flow.
In other words, while it is possible to generate cash flow without profit, it is also possible to generate profit while reducing cash flow. Therefore, it is necessary that both accounts receivable and the bottom line be managed aggressively on a daily basis in order to ensure ongoing success.
What is ease of operations?
Ease of operations goes to the ability of management and ownership to work on the business strategically rather than minute by minute. The ability for management and ownership to operate in this manner is dictated by internal operating procedures and methodologies that provide up-to-the-minute flash reporting on all aspects of the business.
As I said earlier, there are key matrices that are specific to each individual business. For example, hourly flash reports showing daily productivity against key matrices allows management to make on-the-fly operational decisions utilizing real-time, factual data tied to profit, revenue and cash flow impact rather than seat-of-the-pants guesswork. An organization that lives by this key tenet of business (real-time, factual data decision-making) finds itself able to operate in an entrepreneurial, decision-making mode, regardless of the size of the organization.
Gregg Steinberg is president of International Profit Associates. IPA’s 1,700 employees offer consulting services to businesses throughout the United States, including Alaska and Hawaii, as well as Canada. Reach him at (800) 531-7100, firstname.lastname@example.org or at www.ipa-iba.com.