As I grew up on a farm, I learned many a story about growing a business. Another business consultant, who is also the son of a farmer, told me this one: A farmer calls his business partner on the way home from the weekly farmer’s market. “I’ve got good news and bad news. We sold out, but the sales barely covered our expenses, let alone our time and effort.”
“Oh, boy,” sighs the partner. “We’re going to need a bigger truck.”
The moral is, if you’re losing money on every deal, you’re not going to make it up in volume. If you are an independent consultant or small business owner, there is more to this game than just attracting high-paying clients. If you are merely referencing topline revenue, your profit line could be diving deeper and deeper into the red because you did not account for expenses or cost of goods.
“I knew a company who had their best gross numbers for two consecutive years but made no money,” says business consultant Rick Scruggs. “They had the sales and the revenue, yet due to a lack of certain control issues, they didn’t profit from that hard work—in fact, you could call it counterfeit success. You see, it’s not just about knowing your numbers, it’s about knowing the right numbers.”
For more than 25 years, Scruggs has made it his mission to instruct family business owners, business partners, and corporate management on how to grow their businesses and prepare for the challenges the future will bring. As founder of Financial Designs, Scruggs is a registered representative and offers securities, investment advisory services, and financial planning to over 40 qualified retirement plans with combined assets of approximately $90 million.
“Developing a scorecard of nine to 12 indices will give you a quick read on trends, strengths, emerging challenges, and how well you’re progressing to forecast,” says Scruggs. “Regular reports can provide insightful data on how well the business is achieving tactical, operational, and strategic goals.”
Scruggs notes that some teams color code their dashboards to correspond to green, yellow, and red for performance assessment with just a glance. Updated weekly, this real-time gauge on business administration can be a powerful incentive for leaders and their teams, rendering a sense of control and unifying vision. It’s also an early-warning system. By allowing you to address negative trends early, it can be invaluable for allocating resources and guiding strategic decision-making.
Scruggs offers the following tips:
Cultivate a high comfort level with your firm’s balance sheet. “Ask questions and resolve to discern the implications of changing influences in your accounting reports. Stay knowledgeable about trends and closely monitor the factors you deem to have high impact on company value.”
Give yourself permission to work on your business. “Working on the business is the most important thing you can do to build and protect its value. When you stay above the fray at least half of the time, you’re gaining perspective to keep your eyes on a bigger prize.”
Tighten it up. “Tighten up your financial reporting system to ensure complete and accurate financial reports, with accrual accounting for a solid grasp on your historical and current balance sheets. Well-considered projections are an important asset in planning, so it’s wise to be circumspect and include forecasts for your customer base, your markets, and your industry.”
Commit to having a HIGO (house in good order). “Review and integrate all the instruments in your portfolio. Realize that you need a team of trusted advisors who can alert you to pitfalls and opportunities. Arrange for them to coordinate and confer on your behalf.”
Bottom line: Having a house in good order is a deliberate process and comprises a lot of basic financial planning, astute tax planning (and leveraging), and documentation. Understanding the importance of tax rules and timing is a critical element of the process. In addition to a defined lead generation and lead conversion process, it is essential to have a portfolio of financial vehicles such as wills, trusts, power of attorney, life insurance, investments, pension and profit-sharing plans, real estate holdings, and advanced medical directives.
As we used to say on the farm: “It’s not how much you make, it’s how much you get to keep.”