Fourth of 5 of the Most Common Mistakes to Avoid When Growing Your Business
Remember the last time you heard the saying that “you need to get the right people in the right seat on the bus.” Combine that with another phrase “follow the money.” There are times when your business will be better off if you place the right people, money and resources in different places. To get the money to make those changes, something that currently exists often needs to change, be sold, or even liquidated. People may need additional training, be moved to another area, or humanely helped to join another organization.
For leaders, it’s extremely difficult to let go of anything in your business in which you have invested time, energy and money. This emotional response is one of the reasons companies do not want to re-evaluate their assets, much less sell a nostalgic part of the business. Call this the Uncle Joe’s warehouse situation. Things have changed dramatically. That warehouse (or product or customer) stopped making economic sense long ago. When times were good, substantial, sometimes growing losses, were ignored. Consider the process suggested below to look for your version of an Uncle Joe’s warehouse.
Although business is not meant to be emotional, often it can be, especially when it’s your own company that you started from scratch. Determining which assets the company needs to invest in, re-evaluating their worth and possibly selling them when their value has diminished can be a challenging endeavor. That is why you have to think logically, and make decisions about your assets based on the company’s overall well-being.
Once you open your planning to the fact that opportunity cost upsides can make it worthwhile to reallocate resources, even if doing so creates a short term accounting loss, you can create some extremely rewarding options. Start with asking yourself to answer true or false on this statement. My business has an asset it would be better off selling even at a loss to free up cash and pursue a more promising opportunity.
Once you expand this question to suggest periodically reviewing assets, procedures and even your people, it is almost impossible not to see this issue as a point to regularly revisit.
Getting started very inexpensively. When was the last time you heard the CEO, CFO, or financial department mention that the company has to keep losing money on a branch, service, or product because it can’t afford the financial loss it would have to record now to dispose the asset? Admittedly, sometimes this is due either to good intentions or a never say die attitude. I’ve witnessed this situation recurrently dealing with corporations of all sizes. Sometimes people either did not fully understand the real value of its assets, or they looked at the asset through rose-colored eyes.
Consider a process to help you logically review your organizations assets and related liabilities. Imagine what you will see when you look at return on equity related to assets within departments. Many companies have one or more assets that can be associated to a band-aid solution, or assets that should be sold (even at a loss) and re-invested in another opportunity. This can be particularly true when the executive bonuses are mainly a function of the absolute dollar level of profitability, with limited influence from return on equity or similar measurements. This unhealthy situation approaches business flu when allocations or centralized debt costs are excluded from recurring updates.
A different version of this premise is also heard all too often. You (another person or company) would be better off selling: stocks, assets or the business, and putting the money in treasury bills. I saw a situation once where the subsidiaries of a holding company earned 2 % on equity when the prime rate was 4 %. It’s agonizing when your company’s equity can’t even match the current rate of inflation.
On a positive note, businesses that sell stagnating assets, and invest in new creative lucrative assets can build opportunities that not only keep their business afloat but grow constantly, like a never-ending plush rainforest. Why not implement thorough asset performance measures, and embrace the change that may lead to your company moving forward.
You will be amazed at what your intuition will lead you to consider, if you play full out on this question. If you realized a substantial one-time opportunity this quarter, what existing financial balance, staff member, or problem would you change or solve?
Next step, regardless of this quarter’s results, why are you kicking the can down the road on any of these issues, whose resolution you have now admitted to yourself is past due and probably festering?
How long will it take for one of these actions to help your business make more bottom line profits by better managing limited resources available to create sustainable growth and profitability with more accurate financial information?
Known as the Fiscal Doctor, Gary W. Patterson has helped 2 INC 500 companies and over 200 companies in manufacturing, technology, service, construction and distribution in companies from start-ups to Inc. 500 to Fortune 500. Gary Patterson helps you grow top line revenues, keep more of the bottom line and make life more fun. Author of Find Your Blind Spot – Before It Finds You, and Million Dollar Blind Spots. Contact Gary when you need a speaker or consultant on strategic profitable growth while removing risk at www.FiscalDoctor.com or 678-319-4739.
© Gary Patterson, the FiscalDoctor® www.FiscalDoctor.com
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