Are you worried you are missing out on millions of dollars in profit just by making the common operations mistakes of entrepreneurs? Ask yourself these questions:
1. Do you believe management activities are best saved for slow times?
There is a purpose and value to dedicated management activity in almost every environment. If you prefer to stick to “working-foremen” on the shop floor and chargeable managers in a professional service firm, planning (and profit) is what you sacrifice. Even if your industry is on fire (oil patch anyone?) and you are 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 (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) 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 are 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 mores 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 are a manufacturer, have you explained the plan (for financing and acquisition) to upgrade your equipment and processes? If you are 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 I were in your shoes and I said yes to any of these questions, I’d run a process benchmarking to see where you can improve your operations. Whatever’s missing, there is a good chance it is costing you millions of dollars.