Profitability: A new focus to managing business
With numerous other items demanding owners’ attention, owners typically find little time to dedicate to improving the way the business is being operated. This set of skills is essential in predetermining the crucial outcome-your profitability.
Ironically, an amazing number of owners review this issue last on their list of operational priorities. Profitability seldom becomes the primary goal for the business. Instead, it is assumed to be the product of everything else.
In reality, profit should surface as the first determining issue in an owner’s strategic plan. If you are an owner and you cannot gain a profit, you will not survive.
Most certainly, owners must constantly manage over 350 variable costs in their businesses, many of which are moving targets on a financial statement. The true challenge involves managing these variable costs while controlling your profits at the same time.
Without a formal structure or process of management, you will not be able to achieve the highest level of profitability attainable for your company. Failure can occur no matter how well you think you managed the changes.
Managing profitability becomes a challenge in any business, but Illinois Petroleum Marketers, Convenience Store Operators, and suppliers face multiple issues unique to the industry. Owners are forced to adapt; to tight margins, large investment in upgrading and building newer facilities, the demand for greater products and services, employee productivity, theft and turnover, fuel tax issues, stiff competition, operational efficiencies, and variable cost controls.
A System for Profit
For an owner to maximize profit, systems must exist to capture the highest level of available profit from each dollar of sales entering the company through the entire process of input, throughput and output. If no systems exist, multiple profit leaks can occur organizationally, operationally, and financially. The following are some crucial questions every one must consider:
1. Have you ever pre-determined the annual profit? And then deliver it?
2. Do you have a plan to permanently eliminate profit leaks in your company?
3. Do you have a system to capture the maximum available profit?
4. Do you have recurring management issues that never seem to be resolved?
5. Is cash flow a constant problem?
The key to answering these questions and to increasing your bottom line profit lies in integrating some form of a profit-based management system. Profit should occur in a deliberate manner as a result of careful planning and execution of a formal management system. This system can prevent profit leaks from occurring. Profit determination then becomes the starting point rather than the end result.
Profit as the Target
We know that most owners have great technical ability and product knowledge. As your company grew beyond the reach of your own desk, you needed to gain additional knowledge beyond these skills. It then became essential to learn how to manage your company along with your technical abilities.
By not addressing profit issues first, many owners allow hundreds of thousands in profits from operations to continually leak out of the company. Research shows that two reasons can produce this painful, costly problem:
1. Most owners give their highest priority to increasing sales. They assume that more sales will automatically generate greater profits. Unfortunately, as we will describe in later articles, the opposite becomes the reality.
2. Feedback from owners reveal that they tend to view profit as a result of chance or luck, or because the economy is prosperous. The danger is you are “hoping for profit” rather than deliberately delivering for it.
Without a focus on profit first, sales becomes a one-sided solution for a twosided problem. Sales and profit must coexist and align with each other. Does your management systems control this dual approach?.
High sales alone can mislead owners into assuming profit exists. If this misconception seems difficult to accept, look at your own company’s erosion of income verses profit on the company financials. This erosion of profit becomes painfully obvious when you look at the bottom line. What formal management systems do you use to stop the erosion?
By starting with a target of desired profit, it becomes possible to implement the management systems to achieve it. In upcoming articles, we will continue to focus on your company’s profitability as well as profit-related issues you need to know as an owner.
by John Mautner Managing Partner, Advanced Profit Technologies
John Mautner is Managing Partner, Advanced Profit Technologies, a business analysis and transformation company based in Illinois that helps privately owned Midwest companies maximize their profitability. For more information on profit related issues for your company, call John Mautner toll free at 866-850-5310.
Copyright Illinois Petroleum Marketers Association Jul/Aug 2001
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