“Business decisions need to be made on real data—on an unflinching assessment and analysis of how your company is doing. When you start making decisions based on what you wish were true you’re going to make some pretty bad calls.”
So says Barry Sternlicht, executive chairman of Starwood Hotels & Resorts Worldwide. This is great advice whether you’re the head of an international chain of luxury hotels or the head of a four employee cleaning business.
Too often as the owners of small businesses we ignore the “real data”. Too often we base our business decisions on wishful thinking. (Or as a client of mine refers to it, “living in a world of tomorrows”.) And sometimes we “live in denial” by simply turning a blind eye to information we don’t want to recognize.
Facing the real data in your business usually means “somebody” is going to have to make tough decisions. And if you’re the guy whose signature is on the bottom of the company checks that somebody is probably going to be YOU!
Over these next few weeks, I’ll highlight four areas where “an unflinching assessment” of your company’s performance can produce big results. But fair warning here: This assessment will require action on your part. So let’s get started with…
1. Paper-thin profits.
Too many cleaning and restoration business owners don’t fully understand just how deep their profits need to be to escape the gravitational pull of negative cash flow. (Read here that famous “giant sucking sound”.)
We all know our companies need to earn enough money to cover the monthly expenses that get reported on our income statements and to have a positive number on the bottom line. Sometimes that’s enough to get by. But this “zero-sum” approach may not be enough to get ahead in the game.
That bottom-line number also needs to be big enough to cover the monthly “cash flow” expenses that don’t show up on the income statement—things like vehicle payments and line-of-credit payments.
It also needs to allow us to accumulate the cash we’ll need to feed that monster that knocks on our door every quarter—payroll taxes. And then satisfy his close relative—year-end taxes!
Our profits need to be deep enough to accumulate enough cash in the bank to give us a cushion as we enter the often slower winter months and to carry us through periods of slow sales. When profits aren’t deep enough not only the health of our company compromised but so is our own physical health. We find ourselves worrying about which bills can get paid and which can’t. We sweat out making payroll. Or, we wake up during the night stressed out about money.
Remember that thin profit margins are not always solved simply by increasing sales or even by raising your price. (Not that there is anything wrong with either one of these!) Sometimes it’s going to take aggressive action on our part: cutting expenses and curtailing spending. In extreme cases, we might even need to sell the company yacht! HORRORS!
The good news is that businesses are designed to make these deep profits. Sometimes we just have to be “unflinching” in our assessment of the data, and take the necessary actions to address it. So are you ready to take a second look at the depth of your profits now?
Chuck Violand (more about Chuck)
SFS Instructor
CEO Violand Management Associates