Managing Your Business for Profit

By:Larry Herrmann

In today’s environment of uncertainty and tight credit markets one sure place to look for financing your business is the bottom line…profit.

One of the biggest fallacies today about profitability is that if your company has a good product or service and good customer service you will be profitable. Nothing could be further from the truth. Good customer service and good products or services get you repeat business and new customers, which obviously is a good thing, but does not guarantee profitability.

To guarantee profitability you need a good “Closed Loop Business Model” that consists of a “Predetermined Profit Plan”, relentless cost control, good business processes, and accountability.

In order to drive profitability you must identify your “critical success factors”. In other words…what must your company excel at in order to be profitable? Without knowing what “critical success factors” drive your profitability you can not identify accurate performance metrics.

In order for your performance metrics to drive profitability they must be: quantifiable, incorporated into a “Predetermined Profit Plan”, measured, and tracked on a weekly basis to ensure improvement. A “Predetermined Profit Plan” differs from a budget in that profit is not what is left over at the end of the year; it is the predetermined goal that drives all other activity. The “Closed Loop Business Model” focuses all your business activity around achieving your profit goal.

By definition “critical success factors” must be achieved as they are critical to the profitability and survival of your company. Having said that it only makes sense that the processes that drive the “critical success factors” must be well thought out and documented. Once this is accomplished it is imperative that you identify someone with commensurate authority as the person(s) responsible for implementing these processes and held accountable for their success.

The first place to start when determining accountability and identifying responsibilities and authority is the development of a “Functional Organization Chart”. A “Functional Organization Chart” identifies the critical functions and reporting relationships which must exist in your company to it to be successful. There are no names, only function titles. Once you identify the critical functions, authority and responsibility can be defined for each function in such a way as to not create overlaps or leave holes in responsibilities.

Once the “Functional Organization Chart” is completed and authorities and responsibilities are defined job descriptions can be developed which are a critical component of communication. A very important, yet often omitted, component of a job description is quantifying performance measurements for each position. Only when performance measurements are quantified, communicated, and tracked can you hold people accountable for performance which will generate your “Predetermined Profit”.

Like all good things, your company can not sustain profitability without first deciding that profit is the goal and then implementing a “Closed Loop Business Model” to achieve it. “Nothing comes to those who wait”.

For many, thinking of profit as the goal, not great customer service or great products & services, is a real Paradigm Shift which Thomas Kuhn defined as “…a change from one way of thinking to another… a revolution, a transformation, a sort of a metamorphosis. It doesn’t just happen, its driven by an agent of change.”

Remember…if you always do what you always did you will always get what you always got. If it not’s working…CHANGE.