If you want maximum profit, consider partnering with your employees.
“Key employees – in fact, all employees – will be more valuable to a company if they understand what drives profit and improves cash flow for the business,” says leading financial consultant Roni Fischer (www.rlfassociates.com).
Ms. Fischer explains typical obstacles to profit:
- A furniture retailer might have employees who believe every conceivable product should be stocked for easy sales, but workers don’t understand the need for diligent inventory management so cash isn’t tied up unnecessarily.
- In the event of an economic downturn, some sales people want to discount prices. They don’t understand the need to sell products at full price to preserve profit margins.
- Sales persons might focus on prospecting for new customers rather than nurturing existing relationships. They don’t appreciate that retaining customer loyalty by providing added value to those who are already buying your products is much more cost effective than pursuing new customers.
Ms. Fischer knows the greatest asset that any company has is its human capital.
“The best way in which to engage and empower these employees is by sharing management’s vision, goals and sales targets with the company’s personnel,” she explains.
“Employees in every department can impact the profitability and cash flow of the business,” she adds.
“When staff members understand how their roles impact the bottom line – and are financially incented to achieve the company’s goals – they become key partners in the business,” Ms. Fischer asserts.
She recommends key profit-making roles and contributions by departments:
Marketing – Ensuring that marketing campaigns focus on “benefits” – how their products respond to a customer’s “pain” or “need” (rather than merely detailing the features of the product) – maximizes sales.
Sales – Focusing on products with the highest gross profit margins, rather than top line revenue dollars, increases profitability. Structuring commission schedules to reward more profitable sales redirects emphasis to those products and relationships that are most financially lucrative. Partnering sales with finance to collect outstanding accounts receivable balances – before sales commission checks are cut – escalates cash flow.
Operations / Manufacturing – Streamlining manufacturing and operational processes to eliminate waste and minimize defects conserves cash. Accurately planning production levels in response to marketing’s projections enhances the likelihood of having sufficient inventory to meet customer demand (thereby maximizing sales) and minimizes overproduction (which generates costly excess inventory).
“Key employees – in fact, all employees – will be more valuable to a company if they understand what drives profit and improves cash flow for the business.”
Finance – Collaboratively developing budgets that incorporate input from all company departments and tracking performance against these budgets provides a means of quantifying the company’s activities. Translating these budgets into cash flow projections helps ensure adequate capital for payroll-related expenses, production, sales and administrative expenses, R&D, capital expenditures, etc. Evaluating credit worthiness of potential customers and determining when to offer payment terms minimizes the risk of non-collection of accounts receivable balances.
Human Resources – Communicating management’s vision, goals and objectives provides the framework for training and empowering employees to optimize their personal contributions toward achieving these goals. Incenting employees with three-tiered bonus compensation plans reflecting individual, group and overall company performance enables all employees to share in the company’s success.
Management – Strategically guiding the business and empowering the employees to partner with management in attaining the company goals capitalizes on the business’ human resource assets.
“One tool that can be exceedingly effective in guiding, tracking and communicating the company’s performance is the flash report,” she points out. “This one-page document incorporates key performance indicators (KPIs), or critical success factors, that management has identified drive the company’s success. Typically these relate to sales, collections, cash balance, accounts receivable, loan balance, accounts payable and backlog.”
How KPIs are best utilized
“Updated daily by 9:00 a.m., with the KPIs compared against the monthly and year-to-date budget, the flash report should be shared with as many people in the company as possible so that all departments understand their roles and can assume a sense of ‘ownership’ in achieving the company’s goals,” Ms. Fischer explains.
Ms. Fischer is president of RLF Associates, Inc. in the Los Angeles area. As a leading consultant for over 25 years, she provides expert financial and management solutions for firms ranging from start-up companies to multi-hundred million dollar corporations.
See more of Ms. Fischer’s insights: Budgeting Basics for a Micro Business.
From the Coach’s Corner, here’s a related resource link: Accounting / Finance – Why and How to Determine Your Break-Even Point
“I never lost money by turning a profit.”