Profits On Purpose | 3 Tips to Manage The Madness in Your Business
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3 Tips to Manage The Madness in Your Business

We just finished a 3 part series “Teaching Financials to Drive Performance”. The goal was to teach business owners how the impact of their decisions plays out in their financials statements.

However, in order to drive performance you need a clear strategy with process and execution steps built in and then measure your success monthly when you get your numbers. Here are three tips on strategy and execution to drive high performance with in your organization.

  • 1. Shorten cycle times: All of us have a sales cycle, a billing cycle and a payment cycle. Those of us who manufacture have a production and delivery cycle as well. Shortening cycle times means that you are:
  • Selling quicker
  • Billing and collecting payments quicker
  • Producing or delivering quicker

Let’s pretend you’re a residential builder and your normal production cycle is to build a house in 180 days, so you’re able to turn your inventory of houses twice a year. When you reduce your cycle to 150 days, you have reduced your cycle time by 17%. So, if you build 200 houses per year, reducing your cycle time by 30 days means you could build 34 more houses in a year. If your average profit per house was $25,000 that means you could generate potentially another $850,000 in profit by building 34 more houses.

  • 2. Eliminate mistakes:
  • You sell or deliver the wrong product
  • Mistakes on invoices
  • You’re going too fast and making mistakes
  • You don’t have the right processes to minimize mistakes

Let’s take the same situation of the residential builder. This builder is trying to shorten cycle times and is going faster. However, he puts in the wrong kitchen appliances or the lighting fixtures weren’t the ones on the order. Or the prices quoted to the future owner didn’t include cost increases causing the builder to take a loss on the home. All these mistakes can lead to situations, which actually extend cycle times and potentially create higher costs and lower profit margins because of them.

  • 3. Improve your business model:
  • Compare your business with a competitor
  • Borrow best practices from others
  • Up your technology
  • Play with the channel

One of the challenges in my business was that it was very transactional in nature for the first five years or so. I implemented a relationship-based approach to my clients where revenue was recurring, which brought me closer to the client and allowed me to provide additional resources that weren’t previously provided. The consequence of that was my clients became “stickier” and the business grew because of it.

It’s important for you to watch the impact of any of these three tips play out in your financials. However, putting any one of these tips in to practice could have significant impact on your financial performance. Remember any tip takes time for the impact to be reflected, so be sure to give it ample time. What are some things you do to improve financial performance? If you have any specific questions, please “Contact Us”.

Bill McDermott
bmcdermott@mcdfs.com
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