[vc_row type=”in_container” full_screen_row_position=”middle” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ width=”1/1″ tablet_text_alignment=”default” phone_text_alignment=”default”][vc_column_text]Habits to use the numbers to grow your business.
Business owners frequently tell us that they feel out of control.
ON ANY GIVEN DAY, they struggle to determine the profitability, if any, of specific initiatives. Others are unsure about expanding into new markets, and can’t decide if they should pull the trigger on new hires. Then, their managers are lining up at the door with expenses requests. The sales manager wants to go to a trade conference, the operational manager wants to replace an old truck, the human resource director wants to invest in a new employee management platform. While these initiatives may be rational, the business owner is unclear how to finance them. Before he or she can even look at financing options, an email pops up from the bank saying that their account is overdrawn (again!). And it’s only 930 AM.
Customers, bankers, investors, the management team, their family, and the tax authority all have different demands on the business owner’s time and resources. While her or she is an expert in their field, these requirements pull them in different directions where they are not always skilled or simply do not have the time to handle.
USING THE NUMBERS. Gaining an understanding of the company’s finances at a deeper level puts owners back in control. Now back in the driver’s seat, the owner can confidently choose between growth options, take a comprehensive approach to decision making, foster follow through, and put more money in the bank.
PROFITABILITY HABITS CASE STUDY
A construction company averaged 1.4 to 2.0% profitability year over year, producing little cash for financing growth. Thus, the owner used his home as collateral for a bank loan. The average profitability in the industry is 10%; thus, the business was leaving an 8% profit gap on the table. In his industry, each dollar of profit increases business value by 3.5 to 6.1 times.
So how can this owner not only reach, but exceed market average? By putting these healthy financial habits in place:
- Identify P&L Managers beyond the owner
- Create a shared team scorecard based on monthly P & L drivers
- Start Monthly P&L Meetings to Calibrate Operational Game Plans with the Numbers
- Build a 12-Month Budget Profit Model with “What-If” Scenarios
- Use Peer Benchmarks to Define the Top Percentile
- Reforecast Rolling 12-Months Budget Profit Models throughout the year
POSITIVE CASH FLOW HABITS CASE STUDY
The owner of a technology company growing 60% a year, complained that too often he couldn’t sleep the night before payroll. He simply didn’t have enough cash to make payroll. Examining labor utilization and market pricing freed up $498,000 of working capital.
He put in these Cash Performance Habits
- Review Customer Terms
- Examine Market Pricing and Resource Utilization
- Review Billing and Collection Practices
- Analyze Recurring vs. Project Revenue
- Map the Vendor Payment Cycle
- Assess Inventory Management Turnover
These CFO habits are proven to help business owners gain control of their business, increase the value, and achieve top percentile profit and cash performance.
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