Profitable Business Operations

Business owners pride themselves on working long hours in hands-on capacities. Unfortunately, hard work alone is not enough to ensure profitability or the survival of any business. Companies need to be effectively managed to be successful. One critical element in that process is the implementation and enforcement of appropriate operational systems.

Business functions are a strategic set of interrelated tasks and activities utilized to produce a profit. Business operations flow from and support a company’s overall strategic plan. For those operations to be successful, a business owner understanding sales, marketing, overhead, pricing and cost control is required. A business owner must also set and enforce performance standards, collect performance related data and analyze the data to make strategic decisions.

Performing such tasks may cause some owners to become overwhelmed as the business education of most owners occurred on the job. Many know how to work “in” their businesses, by performing various daily tasks, but few know how to work “on” their businesses. Unfortunately, business owners who are not working on their businesses are not likely to stay afloat for very long.

Intense competition, rising costs, globalization, immigrant labor (documented and non) and tighter access to credit are just a few of the many challenges business owners face each day. Each of these challenges, combined with the following three business-related weaknesses, place added stress on business owners.

Lack of knowledge. Business owners are entrepreneurs who utilized their visions, hard work and abilities to sell themselves to build their companies. They tend to be experts in their fields but often have poor grasps of business management concepts and tools. Many owners often make decisions based on habits and assumptions rather than on facts. They compound the error by defending the practice saying, “That is the way things have always been done around here.”

Lack of understanding. A company’s biggest threat is not the competition, an insufficient amount of working capital or a poor economy. Instead, it is business owners’ ignorance regarding the financial consequences of their decisions. Every decision directly impacts the company’s bottom line. When those decisions are based on instinct and allegiance to a set of outdated business practices, the results are usually disastrous.

Misplaced accountability. The owners of struggling businesses tend to work “in” the business by completely absorbing themselves in project-related minutiae. These owners are easy to recognize, as they cannot take a vacation without calling the office several times a day. Additionally, their businesses become jeopardized when they fall ill and are unable to work. They believe their technical expertise is the key to the business’ success. In reality, however, they hurt their businesses by neglecting their primary responsibility: insuring the company’s profitability. Also putting businesses at risk are employees who do not receive enough training, encouragement or the opportunity to develop the necessary skills needed to operate the business in the owner’s absence. When a crisis occurs, these employees find themselves thrust into powerful roles and are therefore forced to improvise as they move from one problem to the next. Their seemingly small decisions add up over time and substantially impact the company’s financial health.

By avoiding these issues, an owner’s ability to assess the company’s strengths, weaknesses, opportunities and threats is greatly diminished. Strategic planning and decision making based on the collection and analysis of relevant data cannot take place in such an environment. Change begins with a business owner’s willingness to admit there may be a better way. The following are some tips to consider when it has been decided that change is necessary.

Work on the business rather than in the business. Owners must strive to abandon the comfortable familiarity of the past, step back from daily details, view the business objectively and assume total accountability for its success. Business owners should also make an effort to understand what they do not know. In other words, they should learn the principles of effective business management and begin nurturing those skills within employees and managers.

Develop profitable revenue. Owners must recognize that profitability stems from the continuous interplay between revenue, operations and accounting. This necessitates the creation of effective sales and marketing plans combined with a solid understanding of a the financial aspects of running a business, such as overhead, break-even points, project costs and pricing. A competitive and profitable price cannot be established without comprehensive analysis.

Control costs and increase productivity. An owner should first address this by identifying specific employee accountability and by establishing and enforcing performance standards. Key managers should be held accountable for the performance of the company and its employees. For employees to maintain a wide- angle view, they should move from fire fighting to fire prevention. They need to be trained to handle various types of work-related issues. Success is tied to performance objectives, and employees should be financially rewarded when their increased productivity results in greater profits.

Measure the results. A successful company depends on business operations that provide owners with timely and accurate financial- and performance-related data. With careful analysis, the critical variables having the greatest impacts on a company can be addressed. Always measure the percentages, not the dollars—this is a rule to remember.

Changing old business habits can seem overwhelming to an owner struggling to survive in today’s marketplace. Outside assistance is often recommended, especially during the initial stages of business plan development, goal setting and implementation of new business procedures and systems.

Understanding the company’s critical variables and striving to work on the business as opposed to in the business is the answer to long-term survival and profitability.