Profitability & Cashflow- The Keys to a Successful Business

Driving in the dark and failing to grasp nettles…

For a long time, the two most common management failures I’ve seen in business are down to two key things:
• Failure to grasp nettles and
• Driving in the dark.
Failure to grasp nettles is failing to deal with those issues and people that are preventing your business from running as well as it should, but where you feel you’d rather leave dealing with them until some other day. It’s like not going to the doctor until that chest pain becomes really painful.

Driving in the dark is the term I use when business owners are running their business without a clear lack of visibility of how they are doing and what’s the best road (course of action) for them to take on the things that really matter in their business. Not a good idea, either in business or on the roads.

Like many things in life, sometimes good-quality, up to date accounting and management information is only really appreciated too late in the day. That’s when it’s either not available or received too late to make any difference to changing things.

Three very recent instances where business owners were frustrated and shocked at what had happened as a result of not having the ‘right’ information. By ‘right’ information I mean information that enables business owners to prevent losses and make the profits they expected when all other things are normal.

Instance No 1 – A business owner (not a previous client) got me to do a comparison of his business with his competitors. The information I was able to give him (showing his excess labour costs, lower margins, higher investment in equipment) came as quite a shock to him. Competitors, whom he had deemed as ‘inferior’ were in fact shrewder operators in terms of making more profit from their business.
The solution to the poor performance of his business was to ‘grasp a nettle’ that he had previously avoided grasping i.e. allowing a manager to ran things the way that best-suited the manager rather than what was best for the business.

Instance No 2 – A business engaged in the contracting sector with a vast array of different products and contracts. The business in general, is very well run with good systems insofar as they were implemented. Despite numerous previous recommendations, this business had not got up to date cost information on each project and was operating in a vacuum as regards where management action was most urgently needed. The end result on a couple of projects was a shock to management in terms of the margin they had expected versus what was achieved. Had they had up to date cost information more action could have been taken to achieve better results.
In this case, the problem was a case of ‘driving in the dark’ without the proper management information to see where they were going.

Instance No 3 – A high-growth business which had achieved serious growth in sales in a short time. The owner had done nearly all the right things but had a deficit in accounting information with no management accounts available until some time after the year-end.
End result was a shock. Was this where that business owner expected to be? No. Could the results have been different if the ‘right’ information been available sooner? Absolutely.
Unfortunately for this owner, this was another case of ‘driving in the dark’, running a high-growth business without the proper management information to chart the route ahead.

Getting the right information and making the correct decisions are the keys to running successful businesses. Even when business owners do everything else right but neglect these two, the results can be very damaging. Not unlike failing to visit the doctor when you should.

Contact Sean Donnelly