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5 Questions to Manage Profits

By: SmallBizClub



I am often asked, in my consulting practice, what it takes to be successful. That is a very difficult question to answer because success can be defined in many different ways. Some people define success as making a tremendous amount of money, other people define success as being happy, and still others define success as having the ability to give back to the community.

I believe that success encompasses all of the above variables. In my business, which is mergers & acquisitions advisory services and transportation consulting, we work with our clients on a daily basis beginning with one premise: they are in business to make money.
I believe that businesses have only two kinds of problems: systems problems or people problems. Systems problems are recognizable; they deal with fixed problems that have fixed solutions. Therefore, systems problems are relatively easy to fix. People problems are another matter, and, in my practice, I focus on employees being a profit center. They are either adding value to the business or you have to question why they are there.
For owners, as they are building their business, not only do they have to take a hard look at their people, but it is vitally important they take a hard look at themselves. Companies fail because of people problems. Often, the biggest problem is the person at the top.
As owners, we must by necessity, start at the top. If you are a President, CEO, General Manager, or head of your department, you must start with yourself and recognize the following:
  1. There is always room for improvement.
  2. Improvement requires change.
  3. In order to continue to grow your business and stay ahead of the curve, you need to embrace technology.
It doesn’t make any difference whether you are a trucking company, a manufacturer, or a service business. There are 5 components of a business that you must focus on:
  1. Do you make profits your first item of expense? What kind of profits should you be making? 5%, 8%, 15%? To calculate where you are going, you must calculate profits first, and then work expenses to meet this profit.
  2. What day of the year is your breakeven day? Why is this important? How do you evaluate expense control?
  3. Understanding finances is the key to profits. Your operating statements are essential for cost control. How do you control operating statements? How soon after the close of a period do you receive notice of financial problems? What do you look for in your operating statements? And how often do you get them—analyze them?
  4. What reports do you receive that are very important? What information don’t you get? And why don’t you get it?
  5. Inventory control makes or breaks profits, in many instances. What is your cost control for inventory? How often do you take physical inventory? How about obsolete inventory? Current amount of inventory? What are better ways to manage your inventory?
All of the above focuses on Profit Performance Management, which begins with the owner or manager, recognizing that you must understand your financials and you need to put controls in on expenses in order for a business to continue to grow and survive.
Harry Truman once said that “Leadership is the ability to get people to do what they don’t want to do… and like it.” Peter Drucker stated that, “The essence of leadership is performance.”
My definition is actually a definition that was written by a good friend of mine, Robert G Peterson, who passed away in the 90s. Bob stated that, “Leaders know where they are going and convince others to go with them.”
If I can impart the “Essence of a Business,” I would state that the true basics of any business is its people. They can be your greatest asset or your greatest liability. As an owner, you need to be the “coach.” You are the solution; it’s your job to make changes proactively, not reactively.
In closing, most successful businesses that are family-owned focus on giving back to the community; not for the recognition, but because they want to. There is no better testament to an individual than their ability to help those who are less fortunate anonymously. At Ahern & Associates, we have been a foundation sponsor for the St. Mary’s Food Bank for 17 years, and we raise funds all over the country to help families with small children and the elderly. Because of Ahern’s sphere of influence, we are able to impact our community all because of our business.
As you are developing your business, if making profits is not your first objective, then you must determine what is. There was a great coach by the name of Vince Lombardi, and he started each football practice with a simple statement, “Gentlemen, this is a football. Everything revolves around this football. Our job is to learn how to control this ball more than the opposition!” For the majority of businesses, they must begin each year with their football, which is profits, and if making profit is not your first objective then you need to determine what your football is. Focus on that and make that your first priority of business.
Author: A.W. Ahern (“Andy”) is Chief Executive Officer and founder of Ahern & Associates, LTD. He received a Bachelor’s degree in Marketing and Business Education from Southern Illinois University and is an accredited member of the Institute of Management Consultants and the National Bureau of Certified Consultants. He holds the dignified appellation of Certified Professional Consultant to Management (CPCM) and Certified Management Consultant (CMC).
Published: July 7, 2015

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