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Ken Keller: Taking the time to perform analysis is invaluable

Brain Food for Business Owners

Posted: January 22, 2011 9:21 p.m.
Updated: January 23, 2011 4:55 a.m.
 

If there is one thing business owners are known for, it is creating and executing initiatives that grow top-line revenue.

 If there is one thing business owners are not so prone to doing, it is performing the analysis on those same sales initiatives, or any initiative for that matter. For many owners, it is simply on to the next new thing!

 Looking at the numbers provides insight into all aspects of the business and is well worth the time to see what numbers really mean.

 Profitability analysis would seem to be something that takes place ongoing, but in many companies, it is rarely done regularly, or to the extent or depth it should be.

Profits are often compared against the current plan for the year and against the prior year. But how often are the actual profit numbers dissected?

 Owners often focus on profits per salesperson, using information that is readily available. But profit analysis shouldn’t end there.

 One way to look at profit numbers is to compare the actual profits generated to what the sales presentation said would be generated in profits when the pitch was made. 

Many companies rank customers by gross sales generated, but fail to rank customers by the profits they generate in their own businesses.

 Another way to review profits is by product line, geography or market segment. Taking the time to dice the numbers can be eye-opening, and might help to avoid the potentially fatal trap of profit concentration; a large share of profits generated by too few customers.

 Between the gross revenue on the first line and the net profit line on the last line on the profit and loss statement lays a great unexplored area called “expenses and overhead.”

 Many owners focus on this area but for the wrong reason. Some expenses in this area are highly visible, so they become hot buttons for the owner. These are expenses that can readily be seen or heard: cell phones, office supplies, copy machines, paper, toner cartridges and the like.

 But if the purpose of the initiatives created by the owner is to increase revenue, it would be better to analyze the use of the payroll and affiliated expenses to determine what positions and actions are helping to create profit compared to those that are not.

 While it would be nice to think that after several years of a challenging economy this would have already been accomplished, a detailed review hasn’t been done in many companies. 

 On a macro level, jobs have been eliminated, salaries reduced, offices vacated, product lines closed down, massive expense reductions have taken place.

The review of payroll expense is not about further reductions in headcount. It is not a question of who is working hard and who is not. It isn’t a question of performance. Seniority does not play a role.

 It is simply a question of who is doing what to improve profitability.

This analysis is about ending activities and tasks that do not contribute to the profitability of the company.

Often people in an organization do things that do not add value, are redundant and waste time and other resources.
Because these activities have been baked into the culture, they are overlooked or dismissed. 

This analysis is about finding out which people can be shifted to doing other areas of responsibility to help the company become more profitable. Making this change could very well require additional education or training, learning new tasks and becoming more engaged in actions and activities related to customer acquisition, goodwill and retention.

Time is the one thing that most owners lack. But taking the time to set in place a timetable to analyze and review what has taken place to create plans for a better, more profitable future can be invaluable. 

Ken Keller is president of STAR Business Consulting Inc., a company that works with coachable growth-oriented business owners, addressing challenges, opportunities, problems and situations faced when leading a growing, profitable enterprise. He can be reached at (661) 645-7086 or at KenKeller@SBCglobal.net. Keller’s column reflects his own views and not necessarily those of The Signal.

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