Are you missing out on thousands of dollars just by making the common operations mistakes of entrepreneurs? To find out, ask yourself these five questions:
1. Are we sacrificing the long-term benefit of management and strategy for short term profit?
There is a value to prioritizing some time to “management” time in almost every environment. If you prefer to stick working foremen on the shop floor or have 85% chargeable managers in a professional service firm, professional development, leverage, efficiency, and longer-term profit may be what you sacrifice. People tend to do what they know how to do and are good at, and often that means the management tasks are sacrificed. Even if your industry is on fire and you’re growing, a well-managed company is significantly more profitable than a poorly managed one in the same growing industry.
2. Do the same problems keep coming up again, and again, (and again)?
Companies without a systematic way of identifying and permanently resolving problems waste significant time, energy, and money. If there is a chronic complaint in your organization (e.g. time sheets take too long, we keep running out of a certain material, we don’t know how to get this one client to pay, we don’t know how to deal with this one staff member, etc.) you need to implement a process for resolving problems. Now.
3. Are you calculating your burdened hourly rate using last year’s financials?
Entrepreneurs often base their costing on a burdened hourly rate, where the “burden” includes things like overhead. The frequent mistake made, however, is basing that costing on last year’s actual financials, rather than the budgeted costs for this year. The entrepreneur concludes that the certainty around last year’s numbers trumps the forecast for this year. They’re wrong. Even cost of living increases change your margin significantly in a competitive environment.
4. Are you over-reporting your team’s chargeable/utilization rate?
This problem is pervasive in professional services firms. The error is simple. They calculate their chargeable rate based on a 37.5 hour week, when everyone knows that the minimum expected of them is more like 50 hours a week. As the chargeable rate approaches 100%, managers worry they are understaffed, even though significant capacity remains based on the norms of the corporation.
5. Are you missing a 5 year “upgrade” plan?
Entrepreneurs have a unique talent for making their dreams a reality. But some dreams need other people to realize them, and if you can’t explain to your team the path you envision to get “there”, team members are likely to run in many different directions. If you’re a manufacturer, have you explained the plan (for financing and acquisition) to upgrade your equipment and processes? If you’re a service business, does the team know how many trained people will be required, and at what levels of the organization, in the next 5 years? If it’s not written down somewhere, it’s unlikely your team will be able to deliver on your expectations.
If we were in your shoes and we said yes to any of these questions, we’d call a strategic meeting to get the best brains in the business together for a couple of hours and resolve the issues permanently. Don’t know how to do it in just two hours? Reach out. We can help. Sticking with the status quo will likely cost you thousands of dollars.
Bellrock is a management consulting and change management firm where remarkable is expected. If you found this article valuable, don’t be stingy. Share!