by Michael Watkins, MBA/JD, EBITDA Growth Systems
What would you do with the extra money if you were able to double the bottom-line profits of your company? You should take a minute to visualize what that might look like. Would you put more into savings for retirement? Would you put more into a college savings account? Would you purchase a vacation home? What would you do with the extra money?
Let me be clear, the doubling of your bottom-line profits is well within your reach.
Most small-to-medium sized (SMB) manufacturers believe that they must double their top-line revenue in order to double their bottom-line profits. The fact of the matter is the doubling of profits is rarely associated with the doubling of revenues. The doubling of profits should come with a modest increase in revenues when coupled with an even sharper increase in Gross Margins. And while there may be any number of possible approaches to accomplish this, the approach that we employ at EBITDA Growth Systems (EGS) has yielded a doubling of profits for virtually every client that we have encountered.
The approach leverages a really powerful equation – Technical Skills X Business Acumen = Success. On a scale of 1-10, it has been our experience that SMB manufacturers rate an 8-9 in terms of Technical Skills. In other words, they typically know how to machine parts. It has also been our experience SMB manufacturers rate a 2-4 in terms of Business Acumen. Because this is an equation, as Business Acumen approaches zero, so does the likelihood of success (profits).
Business Acumen means different things to different people. For the purposes of the equation, business acumen may be defined as an in-depth understanding of how your business works, how it makes money, and how strategies and decisions impact financial results.
|Developing business acumen begins with a 1-3 year Strategic Plan for the business. The Strategic Plan provides the business with direction and becomes its “true North”. Once the 1-3 year strategy has been established, five tactical plans will need to be developed – Financial PlanSales PlanMarketing PlanOperations Plan Management Plan These plans will be executed in the current fiscal year and should move the business forward towards its strategic goals.|
The Financial Plan defines your revenue and profitability goals for the fiscal year. Your revenue goals dictate the contents of your Sales Plan. Your Marketing Plan identifies the number of leads, and the various lead generation tactics, that will be required in order for you to achieve your sales goals. The Financial Plan also defines the gross profit and operating profit goals for the fiscal year. Your Operations Plan lays out the labor, materials, 3rd party processes, etc., requirements that will be necessary to yield profitable production processes. Your Management Plan addresses the frontline management development, workforce planning and employee engagement strategies that are necessary for you to effectively attract and retain talent.
It is the interplay between these five plans that create Business Acumen!
Get Business Acumen right and your chances of success – the doubling of profits – increase dramatically. Get it wrong and you will continue to experience the single digit profitability that is so prevalent in our industry.
So, what would you do with the extra money if you were able to double the bottom-line profits of your company? Start thinking about that because it is well within your reach.