Five Sure Fire Ways to Kill A Wonderful Business

August 31, 2011 by  Filed under: Management 

Only five ways? Well, there must be more than a hundred sure fire ways to kill a wonderful business. But let’s start with five very common ways.

1. We’ll make it up with volume.

Sorry, if you’re expecting volume to solve all your problems, it won’t. If you don’t know how your costs vary with volume, you may be accelerating your demise. If it costs you $110 to make a $100 sale, will volume help? You need to know what your capacity is. When you’ll need more capacity? How will costs change with increased volume?

This author worked for a semiconductor company starting up a new manufacturing facility. Early on, our costs were too high, way above market value. A couple of years later, we prepared a chart comparing cost to volume. The problem was that the lines representing cost and volume were parallel-Costs increased almost as much as volume did. More volume does not always fix a profit problem.

2. Don’t mind the till.

Despite whatever you’ve heard – Cash is king, the true bottom line. This is especially true in smaller businesses where responsibilities are concentrated in a few people. In larger businesses, auditors flag even a hint of this sort of situation; smaller businesses have fewer employees and therefore fewer options to divide work appropriately.

How many business do you know that were nicely profitable? Then somehow they found out that a trusted employee had siphoned off thousands of dollars. It makes for a good spot on the evening news but very bad news for the business.

3. Focus solely on quality.

While there are quality gurus who say to focus on quality and profits will follow automatically, this is not a silver bullet that cures all ills. Not that quality does not matter, it is indeed essential. However, effective business requires trade offs. Quality without regard to cost will not work.

A classic example is the Wallace Company who won the Baldrige award in 1990 for quality and filed for bankruptcy protection in 1992. While there are many reasons for the Wallace Company’s bankruptcy, quality alone did not save them.

4. I’m too busy making sales to plan or budget.

Whoops! There are many great reasons to plan or budget. One of which is to set targets so that you know how well you’re doing. Another is to have alternate plans in place in case the business environment changes. Another is to determine where your scarce resources can best be used. Need we go on?

Planning is equivalent to sharpening your saw. Taking a step back to look at the horizon ahead and the path already taken is essential to directing the business and improving profitability.

5. Look for cost savings solely in the financial statements.

Financial statements do not tell the entire story of a business. They are structured first to fill the need for public reporting and taxes-not for improving operations and processes.

Operational improvement requires examination of activities or the work you do and how much these cost. Then analyze how products and customers consume activities. Finally review product and customer profitability versus the cost.

Well, here are five ways. There are many more-perhaps a hundred and one sure file ways to kill a wonderful business. With a little care, your company will not join this list.

This list is far from comprehensive. Capacity management and cost management principles assist in growing and managing a business. For more tips and resources, please visit http://www.CostMatters.com.

Article Source:
http://EzineArticles.com/?expert=Alan_Stratton

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