Monday, September 30, 2019

Mind the Pennies, and the Dollars will Take Care of Themselves

 -William Lowndes (1652-1724), former Secretary to the Treasury of Great Britain

This time-tested phrase warns us to be frugal and the little steps will add up to big things.  In business, this pertains to stopping profit leaks within the organization. Every company has profit leaks, the key is to develop systems and automate them to minimize the effects of these leaks, thereby increasing profitability and putting more money "in the bank". 

Pennies to Dollars
I once consulted with a start-up company with 10 employees.  As a small company, the leadership felt that they weren’t “big enough” to need systems and that they could save money by handling processes manually.  Every day, the employees would call them with questions about how they should complete this task, where they should buy this supply, even call in their time card hours. (Most of the employees were remote workers). With one or two employees this “system” had worked, now that they had 10 employees, leadership spent most of their day on the phone!  Obviously, this was a terribly inefficient use of the leaderships time and they were not able to work either in or on their company and the bottom line was taking a significant hit because of it.

In order to help them, I first had to show them how much of a negative effect this had on their bottom line.  They didn’t even realize it was a problem!  After a long conversation, they approved a test.  We implemented a cloud-based “time clock” and required each employee to use it.  Guess what?  Not only did they reduce the number of phone calls by 10 each day, (a time savings of 30-45 minutes daily) but the employees were excited to have a few extra minutes each day as well!  This worked so well the other systems I recommended was approved on the spot.

These changes left the leadership with more time to focus on increasing revenue and a platform with which to scale the business. (working ON their business)  The effect of increased revenue AND increased profitability simultaneously supercharged the company's balance sheet and valuation.  Whether you want increased cash flow as an operator, or to increase your valuation prior to a sale, the quality and utilization of your systems will make a big difference in your bottom line.

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