Imagine with me for a minute you’ve joined the circus. The crowd is cheering, the lions are roaring, and the ringmaster has just announced that it’s time for you to walk the tightrope.
Growing a company is much like the balancing act of a circus performer. You have to walk a thin line of incoming orders and sales with cash flow, accounts payable, lines of credit, and (most frightening of all) accounts receivable—all without losing your balance.
Unfortunately, unlike the acrobat in the circus, your business doesn’t always have a safety net for you to fall into.
I’ve helped 77 businesses increase profit and add growth for the past 52 years. All of these businesses were in a position to grow, but imploded because they weren’t prepared for growth—and unprepared growth can be a “company killer.”
Here are my 8 secrets of growing a company and increasing profitability:
1. Be transparent with your team
The entire team must know all the information about the business, including the financials. I know what you’re thinking: “I can’t do that.” Yes, you can, and it has worked all 77 times I’ve done it.
How can you expect your team to go on a journey with you if they don’t know where you’re going, how you’re going to get there, and what you’re going to do? Simply tell them this information must stay inside the company as it could jeopardize everyone’s job. Regularly updating and sharing a Lean Business Plan can be a powerful way to make sure everyone’s on the same page. But be clear about where you stand on your sales forecast compared to your actuals as well.
2. Make a 90-day plan
Start by making a 90-day plan. Break it down into months, then weeks, outlining who is going to do what, to whom, when, and for how much.
I’m not asking for a Harvard Business School plan, but you need to lay out a base of where the company is today and project what is needed to ramp up growth and profit for the next 30 days, the next 60, and the next 90 days.
Consider the Lean Planning approach. Don’t spend a massive amount of time on this because you’re not going to be right the first few times. You and your team will get better each week as you make corrections. In this case, “good enough” is a fine place to start.
3. Measure and share your metrics daily
Okay, now how are you going to measure progress?
You and your team are the only ones who can make that decision. Is it sales? Production? Orders? We use a series of whiteboards to post the metrics we need to measure daily—I suggest these for any company.
Make sure these boards are placed where the entire company sees them every day, as it lets your team know where you are against your plan. Trust me, these boards make things happen!
4. Reduce all unnecessary expenses
Make sure your team understands there are two routes to increased profitability: increased revenue and decreased cost. You need both.
Turn your team loose to reduce any expense not necessary for your core business. When the leaders of the company point out areas for possible expense reductions and ask for the team’s help, it creates a team spirit which empowers every employee.
5. Require that all spending use a formal purchase order process
Using a purchase order process is just another way to be transparent. It will help you maintain a balanced cash flow and keeps everyone in the loop with a defined, documented process, which is the primary point.
Growth is scary because it can get out of control in a heartbeat, therefore we must know what purchases are being made to time our cash flow.
Each department needs a dedicated purchase order process, and before issuing a P.O. The request needs to be checked against your cash flow report so you can make sure the funds are available when needed. As the owner, decide on the dollar amount threshold at which you want to personally sign off on purchases.
6. Turn on your accounting headlights
Most businesses operate utilizing what I call “taillight accounting.” A monthly set of financial statements—income (profit and loss) statement, balance sheet, and cash flow statement—are compared against last month and last year. While useful in its own right, taillight accounting tells us where we’ve been, not where we’re going.
Here’s why: It’s typically a few weeks into the next month before you’ve received your statement for the month before. Forty days have passed since the beginning of the period you are reviewing—not good enough for a business in a growth mode.
That’s why we need a daily operations board, or a business dashboard, to track your financials easily. These are boards that are updated daily to show where you stand every single day. By using headlight accounting, you can recognize a problem within 24 hours and make corrections now rather than a month and a half later. The other piece you should definitely incorporate is comparing your current actuals against your forecasts—so not just a backward look, but a look at current performance compared to what you predicted.
7. Bonuses, not raises
In all our companies, we give either quarterly or annual bonuses, not raises. When you give bonuses, the money is already in the bank. You know the amount of profit made. When you give raises, you are increasing expenses going into an unknown period. What if revenue drops?
If you keep your team in the know, they will not only understand the change but will be more eager to help the company grow. Don’t jeopardize the future of your company by giving raises.
8. No accounts receivables
Try to pass the first window at McDonald’s and see how much food you get at the second window. They don’t do credit, and neither should you.
Think you can’t? Well, I’ve proven you wrong 77 times in 25 different industries. You can do it. If you’re carrying high ARs, you’re in the banking business, pure and simple. If an account doesn’t pay on time, they will crush your cash flow like a bug.
Headlight accounting requires us to know where we are all the time, and having a ton of ARs out in the weeds won’t let that happen. Use credit cards, or get with a bank and set up a factoring account; yes, they will charge you a fee, but every night the invoices generated that day will be money in the bank.
In 77 companies across 25 industries for over 52 years, these methods have worked to grow each company, including many who were generating in excess of $300 million in annual revenue.
When I finished writing my book, “Strengthen Your Business,” I sent it to T. Boone Pickens, who I have known for 40 years, and asked him to write the foreword. Here is the last paragraph of his foreword:
“Every country in the world depends on the kind of small and medium-sized businesses Bob aims to help with ‘Strengthen Your Business.’
I would advise any business owner, whether times are troubled or prosperous, to study and apply the lessons Bob demonstrates. Doing so has the power to transform your business into a more efficient and profitable operation.”
The steps outlined in this article will give you orderly, controlled growth. It’s my hope that you will take them and use them to strengthen your business.