Thursday, September 25, 2008

The ROI on Staying Profitable

Today’s economy is tough. Many companies are facing revenue shortfall, profit squeeze, cost cutting, reductions in force and layoffs as well as the resulting increased stress throughout the company. Many companies are incurring losses and this isn’t just in the financial and automobile industries.

Long ago Samuel Gompers, the first President of the American Federation of Labor said “The purpose of business is to make a profit.” We may modify that a little today with our social consciousness, but it is essentially correct. Profitability is essential.

What is the ROI on being profitable?

We generally look at it in terms of the financials. What is the financial return on the investment to stay profitable? It is commonly agreed that it is significant. It impacts the internal programs, initiatives, operations, staffing and spending. It impacts the external aspects as well, in the relationships with our suppliers and the financial institutions, for example.

Beyond the financial aspect , there is a large emotional impact. A profitable organization tends to have a positive outlook on the day and the future. Employee moral is much better. Spending plans are tight and crisp to insure that the company remains profitable. However, when a company crosses that critical line and slips into unprofitability, there can be a sloppiness in planning. What is the difference between losing $100K or $150K or even much worse in the millions. This is a very dangerous situation.

How do you avoid slipping below the profit/loss line?

Unfortunately we find that many companies continue to operate in the same way over and over despite the fact that it isn’t working. They do not take the needed actions to change their result. Or equally bad, they do drastic cost cutting without a clear plan or assessment of the impact on profitability. Across the board cuts always lead to under-supporting key projects in other departments where the funding has remained.

Warren Buffet said “I am amazed at the number of supposedly smart executives who think they have all the answers and yet continue to make the same mistakes. Learn from someone with experience.”

Is this speaking to you? Ask yourself these questions.
· Are we less profitable today than we were last year or the year before? If we are actually unprofitable, mark this with red!
· Are there bottlenecks in our operations for which we do not have a solution?
· Are we in the cost cutting mode that may shore up short term profitability but could cause a much more significant impact across our organization as we go forward?
· Are we working harder and our results are lower?
· Do we question if we have a plan that really works?

If you answered yes to any of these questions you should consider getting some expert help. Our recommendation based on years of working with many companies is to divert a small portion of the company’s spending and invest it in obtaining a better way for you to do business and to stay profitable. The ROI can be considerable.

Don’t keep doing the same thing. The definition of insanity is doing the same thing over and over again, but expecting a different outcome.

If you are still wondering about this, contact us. We have a simple starter plan and it’s free to you.


John Maver
Maver Management Group
(925) 648-7561
Maver Management

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