Your Company can make more money.
If you knew what the problem was, it would not be a problem
The normal solution for a business when income goes down is to borrow money. But this is not the solution.
The thought is “If I have money, it will solve the problem.” Does the problem get solved? No! The next step is to look for an investor because the company still earns too little money. If they find an investor, the money is received and spent. The problem, of course, does not go away.
On the other hand, if you know why the company income is down, a plan can easily be developed to correct the error and make more money.
Let me tell you some true life stories I have been involved with.
The Printing & Mailing Company:
The company profits stopped at the end of the Christmas season. The CEO blamed the President and demoted him to salesman and put in a new president. When I looked at the invoices, I saw the customers were not charged enough for the printing. When I told this to the CEO, his response was that the salespeople were told not to sell cheaply. The salesman was called and he responded that they were losing jobs after quoting. The CEO made a comment “do what has to be done.” Based on that remark the prices were slashed by the sales staff and the work was being done at an actual loss on each deal. The sales staff had been doing this for six months and the company was on the verge of bankruptcy. The CEO had assumed that when he gave an order it was followed. It was. The sales staff did what they had to do, which was give the work away.
The President who was demoted to salesman had a personal problem which was at the bottom of a lot of the company’s mismanagement. He was so concerned about making money for himself rather than for the company that he was draining the company.
When he was demoted to salesman he went on commission, so he needed to close those sales orders, even if at a loss to the company. Why? He had bought a house on speculation and was remodeling it. It was taking 2 years to remodel the house and was costing $100,000 over budget. While President, the now salesman had submitted a workers compensation claim and borrowed money from the company. At this time, the company was borrowing money on its credit cards at 24%. He also was taking bonuses based on false production reports. After he left, the company made more money.
Auto repair center:
The owner was making only $25,000 per year profit. His solution was to sell the business. I looked at his Profit & Loss statement and instantly noticed that his cost of parts was too high. Auto repair shops all have the same cost of goods (direct parts and labor) in relation to sales. I asked where the parts were kept. He showed me a screened in room, with no lock on it. I explained someone was stealing $30,000 per year in parts.
Now that he knew that the company had an employee stealing, it only took him 30 seconds to tell me who it probably was. I told him to lock the cabinet, and the theft would stop. He did not get around to locking the cabinet or firing the employee so the company did not make more money.
The owners were having cash flow problems. Their solution was to not pay the customers who they were collecting debts for. That is theft. They found out two years later that their bookkeeper had stolen $500,000 from them. That is why they had a cash flow problem in the first place.
The owner pays his electricians in cash. I find out that the reason he is doing that is because he can’t manage the business. His solution is to sell the company. Because it is impossible to switch cash employees to taxable employees without a big raise, the business would not sell for anywhere near the desired price. The reason is that changing to honest payroll records will reduce the staff’s paycheck and cause the staff to quit. The owner’s real problem was he needed a manager to help run the staff. Without a manager, the business needs to be downsized to a manageable level, by doing 20%-30% less business. He can afford to do that because 20% of his volume was generating 80% of his profit. He just gets rid of the low profit business and his profit would stay up and he could easily control his company again.
When you have a problem with no apparent solution, anything you do is probably wrong. First step is finding the real problem and then the solution becomes easy. You do that with the help of someone exterior to your company, someone who has enough familiarity with the industry to know what the business should look like, if it was operating properly.
If you have any experience in finding solutions and making more money for your company, please let us know.
Creative Commons Attribution: Permission is granted to repost this article in its entirety with credit to Business Buying Services and a clickable link back to this page.
Image credit: borzaya istock