Doing Well? How do you Know? | Extraordinary Business
With the Affordable Care Act a.k.a. “Obamacare” rolling out, business owners and politicians across the country are faced with the question: “How will this affect my business? How much will it cost me?”
Realizing that the act will require change, either from compliance or non-compliance, what has to happen in order for you to make a good decision – even to criticize or support it – is to have access to the information about your business. In short – its economy, which you could say is the management of the use of scarce resources, essentially, time, money, skills, real estate, equipment and other assets.
For example, if you look at the cost of the Obamacare program versus the cost of hours or days of lost productivity per employee due to being sick and not being able to go to the doctors, or losing employees because they find a job that has better benefits, which would cost more? Which would cause you, as a business owner, to expend additional resources either covering for that person yourself or finding someone else to cover that person?
Are there alternatives? Would they work better? How do you know? Is the information you are receiving filtered, or straight from the source? You cannot answer these questions without knowing your business’s economy and access to accurate information that
Think about it like this: you have a computer that is central to getting your work done. Unfortunately, the computer tends to bog down for about an hour each day because you are running some programs that require all of its resources. How much productivity do you lose?
It isn’t just the amount of time spent trying to complete the task; it includes productivity that could have been gained by being able to complete another task that needed to be done. So if your hourly rate is $35 per hour, the loss is twice that.
1 hour per day x 2 hours lost x 5 days per week x 51 weeks/year x $35 per hour = $17,850.
Even a third of that – $5950 – is more than the cost of the computer. At what point does it make sense to invest in a new computer? If you were able to be more productive how would it affect your bottom line, i.e., how much more work could you bill for?
Real life example: I worked with a marketing firm not too long ago that was run by a brilliant creative person. The company was and continues to be profitable in one sense: it had positive cash flow, a decent stream of business, a good, solid client that provided about 60-70% of the company’s revenue and access to good talent to ensure that the products the company was offering were extraordinary. Sounds perfect, right?
While the owner knew what he needed to bring home, knew how much money he wanted to keep in the bank and how much he wanted to pay people for certain types of projects, he missed out on opportunities to make investments in his firm that would have expedited company growth. Had he been looking at his finances on a profit and loss statement versus his bank account, he would have seen a very different story.
The problem became a big, ugly, hairy beast at tax time, when he found himself owing a huge tax bill without immediate means to pay for it, further disrupting his ability to make the necessary investments in his company. Compounding this with access to additional capital, the lack of knowledge and understanding of how his firm truly operated resulted in the loss of clients, staff and partners, in all value of over $500,000.
What would have made the difference?
- Working with a finance and tax professional who would have alerted him to the best way to manage the company’s tax strategy and the best way to plan for future investments, including company growth and potential retirement
- Committing to and following a plan: despite having a plan in place, disregarding the plan will yield results that don’t meet expectations
- Measuring results: getting feedback from present and former clients, reviewing outcomes of sales calls and meetings, measuring profitability of each project against benchmarks and using a budget would have been essential
- Product management: despite being a service firm, understanding why people buy, what the market needs are, how to position the product, different channels, etc. would make it easier for prospects to make a buying decision and make the firm more attractive to specific potentials. Furthermore, he would be able to benchmark what was working, monitor the quality of the deliverables outside of his core offerings and been able to identify weaknesses in the product in order to enhance it
Like the true impact of the ACA or even that of replacing equipment, with an understanding of the true cost of the decisions that were being made, the story could have been much different. This is a company that could have been – or potentially could one day be – an extraordinary company. This, unfortunately, is the story of many people, businesses and governments. Thinking one dimensionally – only in the short term, may make immediate progress, but might cause the business to be sidelined in the long run.
What are your thoughts? Do you know your numbers? Are you tracking more than what is in your company’s bank account? If not, how do you know how well your company is doing? How do you know if you can take advantage of opportunities in the marketplace? How do you ensure that you are delivering a product for your clients that continues to exceed expectations?
Thanks very much for reading and for your consideration.
Rick Meekins is the Managing Consultant at Aepiphanni, the trusted advisor for business leaders who are seeking forward-thinking solutions to help them plan for and navigate through the challenges of business growth. Our entrepreneurial multidisciplinary team works with clients to develop differentiating solutions and provide direction focused on lasting, strategic results. We exist to help our clients CREATE | DESIGN | BUILD extraordinary businesses.
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