Is Profit the Only Business Number You Need to Pay Attention to?

We are experiencing significant prosperity both as a nation and in business.  Business profitability is up; the economy is up, business is good.  According to Market Watch, “A torrid U.S. economy blazed a 3.5% pace of growth during the summer and boosted corporate profits to the highest rate in six years, fresh government figures show.”  But as some would say, “But wait, there’s more.”  “Adjusted corporate earnings before taxes rose 3.4% in the third quarter.  More notably, profits in the past 12 months have climbed at a heady 10.3% clip, the fastest increase since 2012.”  Business is making a profit and a good profit at that.  Sounds good, doesn’t it?  So why the question?  Are there other questions you need to ask?  Is profit the only business number you need to pay attention to?

It is good, but the real question is will it continue?   Some experts are predicting a downturn in 2019; some are predicting a recession.  Historically speaking the US is overdue for a recession having experienced one about every 3-4 years following an average recession length of 18 months.  We have been experiencing an unusual recovery period with significant success.  Ironically it is success that often contributes to a recession.  While all of these numbers and economic studies may seem boring, they have great importance to your business.

Let’s be honest, business is good.  When I speak with Business owners, I hear the same mantra – “business is good, and I don’t have time to work on recession-proofing my business.”  So what should you do?  Here are some things to focus on –

Operations/Process Improvement – understanding and managing –

  • Process Mapping
    • Cost Analysis
    • Workflow
    • Workforce Engagement
  • Production/Product
    • Pricing
    • Materials (inventory)
    • Cost of production
  • Marketing and Sales
  • Customer Service/Retention
  • Waste/Error Reduction and Elimination

You can focus on these by yourself, with your team or an external resource. Commonly, doing them yourself or with internal resources not as productive as an external resource.  Internal resources are often distracted by a variety of internal issues that an unbiased external resource isn’t influenced by.  None of these issues can be fully resolved by an accountant or financial advisor alone.  These require intimate knowledge and understanding of your processes, and this is not something either of those professionals are involved in.  It is imperative that you fully understand how things get done to help you discover where your money goes. Understanding where your money goes helps you address the production costs of your business as well as the non-production costs.  By understanding these now, you can become more efficient, reduce your costs and improve your profit and business value.  Doing this helps you prepare for the inevitable downturns our economy faces and allows you to remain in business during them.

The added benefit from all of this is:

  1. Your business is more productive because you are more productive
  2. Because you are more productive, you are also more efficient
  3. Efficiencies result in you doing more with the same or less
  4. Because you can do more with the same or less you reduce the negatives of an economic downturn such as layoffs and shutdowns.

Taking the time during high periods of prosperity is the best time to prepare for those times when business slows down or even goes away.  You have to not only protect your profit numbers you also must protect those numbers that sustain your business.  Now is the time to act, not later when you need it the most.  Your business is more than just profit.