“Profits is not a dirty word.”
Higher profits should always be the goal of owners and leaders of an organizations, but profits don’t just happen and upper quartile financial performance never just happen. I have often seen leaders that are afraid of pushing “profits” as one of the top goals of their company. They extoll culture, values and the soft side of management. Nothing wrong with that, but the objective of delivering financial results year after year needs to be first and foremost. Profit is not a dirty word and the idea that you are on business to make money should be accepted as Job One for every business.
Keep Tight Books – Have A Great CFO – Use Outside Accountants
There are many factors that drive financial performance. The marketplace, the health of your brand, the strength of your leadership team, the effectiveness of your processes and procedures and the overall competencies of your organization. All these factors affect the ultimate financial performance of your business. One of the most important competencies of any successful business is the ability to plan, manage and to deliver strong financial results.
Understand Your Financial Performance Metrics - P&L Intimacy
When you want to know if you’re in the red or in the black, you just flip to your P&L and look at the bottom line. Your P&L starts with a summary of revenue, the details costs and expenses, and presents the all-important “bottom line”—your net profit . . . or loss.
What Gets Measured Gets Done – Have Robust Decision Based Financial Reporting
Financial Reporting is all about providing managers the essential financial data required to manage costs and expenses. Every successful organization has a disciplined annual budgeting process. It should be annual, simple- led by the CEO and managed by the CFO. I have always begun the process early in October with the goal of having a final financial plan completed by mid-November.
Perform “Gross Margin Magic” – It is not just sales growth-It’s GM growth.
Too often businesses look at Sales Growth as the Holy Grail. Sales increases should be the result of improved sales strategies, product and line improvements, better marketing programs that don’t impact gross margins. Sales increases can also be driven by price discounting, guaranteed sales, the selling of close outs, or higher levels of costly promotional activity that adversely affect gross margins. I learned a long time ago that the real Holy Grail is not Sales Growth but the growth in Gross Margins.
Manage the Hell Out of Your Inventories – Pricing, Line Size, Buys, Cuts.
Over the years, I have witnessed many organizations get into trouble due to poor inventory management. Plan your seasonal inventories and buys by category and by style. When the season is ending, aggressively liquidate obsolete inventories and non-continuing styles.
Tightly Manage Your Expenses – Use Zero Based Budgeting
Zero-based budgeting (ZBB) should be the primary budgeting tool for managing expenses and for driving profit within your company. I would recommend that every business adopts a ZBB process. It is a repeatable process that rigorously reviews every line item and questions every dollar planed in the annual budget. A ZBB process helps build a culture of cost management among all employees. ZBB requires that managers develop deep visibility into cost drivers of their line items and using that visibility to set aggressive yet credible budget targets.
Cash Flow - Don’t Get into Financial Trouble by Over Leveraging the Business
Cash Flow Management is part art and part science. Beyond basic profitability, having enough cash on hand at a given time can often make or break the success of a business. Even if your business is profitable, rapid growth can cause cash flow issues.
Plan & Manage to Achieve Higher Levels of Income & Overall Financial Performance - Every Year - Year Over Year
Driving Financial Performance requires strong “Bottom Line” minded leadership and a management team that is aligned and dedicated to delivering improved financial results. As earlier stated:” What Gets Measured Gets Done” has a corollary: “What Gets Managed Gets Done.”
Every Profit & Cost Center Must Be Under the Control of a “C” Level Manager or Director
These Senior Managers oversee Line Managers in their execution of the budgeting, spending, tracking and their controlling of the results on each Cost or Profit Center.
Each Line Item Expense Should Have an Answerable “Line Owner”
Accountability drives good financial decision making. While Senior Managers are accountable for the results of their cost center, every line item on the P&L must have an “owner.”
Build A Strong Relationship with Your Source(s) Of Financing – Insure True Transparency and No Surprises
Your bankers, financiers, and/or your sources of capital are crucial in the financial management of your company. Let’s face it - you need their support and their support is dependent on their understanding of your business.