We say “additional” because whenever management tells us there’s a cash-flow problem, we always start with fixing profitability, unless the company is broke and needs an immediate cash infusion to make payroll.
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You know you have execution issues if three things exist:
- There is needless drama in the organization (e.g., something shipped out late; the invoice was wrong; someone missed a meeting; etc.).
- Everyone seems to be working more hours, spinning his wheels, or spending too much time fixing things that should have been done right the first time.
- Most important, the company is generating less than three times industry average profitability.
Because many accounting departments are short-handed, there are often delays in getting invoices sent out and bills collected.
Our pet peeve is when a company’s leaders think it should grow regardless of profit. This is just reckless, unless you’re a venture-backed firm pioneering new territory. For everyone else, we recommend getting profitable with the work you have, proving you can get to 15% profitability (based on our adjusted Simple Numbers), adding labor to knock profit back
to 10%, and then growing to 15% again. Lather, rinse, and repeat.
Owners like Gary choose to spend money every day to grow their businesses. However, sometimes they are actually spending their hard-earned money to cover management-influenced waste (read that again).
We were creative in how we saved money, and we got creative in how to make money, too. (This, incidentally, was a whole lot more fun.) No matter how you try to sugarcoat it, managing expenses is playing defense, and we had decided to play offense to get through the crisis.