How You Can Unlock Hidden Profits in Your Business

Some are calling him a “turn around king” as he has recently has focused his attention on helping struggling businesses.

Since 2013, Marcus Lemonis has been the Star on CNBC’s “The Profit” where he makes an offer to owners who have asked for his help. After diagnosing the business, he writes them a check and asks them for: a piece of the business and a percentage of the profits. He tells the audience his check injects capital to help grow the business but more urgently the cash addresses owner’s decisions impacting their working capital: debt, inventories, payables, receivables, etc.

Based on his experience as a serial Entrepreneur, a CEO and his diagnosis of the business, he attacks the opportunities and the potential the current owners are unable to see: the “hidden” revenues, profits and cash.

Throughout the show you will hear Lemonis emphasizes his “three Ps” principle of People, Process, and Product as he tries to align everyone in the business towards actions to improve the financial and commercial results. Every now and then he uses words like “chaos” to describe the business environment. In the end, the people change, the business becomes healthier, more successful and both the business owners and their new partner Lemonis, earn more Profits.

You and your team can unlock profits and cash in your own business!

There are many excellent checklists and diagnostic instruments that can be used to help managers identify where potential profits are hiding but grinding through the checklists will only get you so far.

The need for change will arise and the best way to address needed change is with improving leadership skills.

“In the end, it is important to remember that we cannot become what we need to be by
remaining what we are.” Max De Pree

Yes you may be doing well but there is room to be even more profitable. A leader’s role is communicate the “Why?” we need to unlock more profit and why the need for change. How will the change impact the current team? Who is critical to helping us achieve the new vision? Changing behaviors and mindsets is hard work and a few are simply not going to welcome change.

Mindset and being open to change will be key.

The work, the tasks and the processes must be looked at as well as the information, the decisions, and the actions. Your people, team, org. chart, culture, capabilities and products/services will come up again and again as your customers demand more from your business.

What is included in a diagnosis of a business?

There are many methods but at a basic level a diagnosis is an evaluation of your business using interviews and review your financial history to discover the successes, challenges, trends and opportunities you are experiencing. The evaluation also includes the effectiveness of your processes to manage your marketing, sales, operations and talent management.

The diagnosis covers your goals you have for the business and what has changed along the journey. Where are we now? Where did we say we wanted to be? Are you achieving your goals? If not why not? If you achieved the goals what next? Is your whole organization aware of and aligned with these goals? Does each person understand how their role impacts goal attainment?

Here a five areas to help reveal how much profit and cash you may be missing.

First, what are your Net Income goals? Using 3 years of your Profit and Loss statement, calculate your operating income based on the costs and overhead expenses subtracted from the revenues you earned from your customers.

  • Fixed Costs and Overhead Expenses are all these expenses helping you achieve the results we need and want? We want to identify opportunities to decrease fixed expenses and impact the bottom line immediately.
  • Gross margin dollars. Your gross margin dollars is the amount of money you retain after paying all of the direct costs needed to make, sell and deliver your products and services. We want to identify strategies on both the revenue side and the direct cost side of the gross margin equation to improve your company’s gross profits and the margin for specific products or services.

Second, what are your Break-Even numbers? For many this is an important and eye-opening review to determine if the sales goals are strong enough. Many time I find expenses, costs and required payments which are not included in the Break-Even calculation. I also discover the daily, weekly and monthly sales goals needed to Break Even and be profitable, are not known by key players.

Third, what are your weekly Cash needs? This is a “vital sign” of the business. A good client told me “Profits are like and cash is like air. Which one can you live longer without?” Assess the monthly inflow and outflow of cash, the monthly balances of cash in your bank, the lines of credit needed to operate your business and the business processes that impact your cash conversion cycle.

Fourth, what are your current and potential revenues from existing customers? Opportunities to sell more of your existing products and services to existing and past customers include strategies to: retain the best customers for as long as possible, generate referrals for loyal customers, bring back old customers, increase average invoice amount and increase the number of customer purchases per week/month/quarter/year.

Finally, what are your potential revenues from new customers? Do people know and are aligned with; the criteria for your target customer, total leads or quotes being generated; the leads to order conversion numbers or total cost to acquire a new customers?

Alignment and action.

“When the winds of change blow, some people build walls and others build windmills.”
Chinese Proverb

Based on my experience, owners and leaders are too close to their business to see the hidden opportunities.

Each of the areas could be hiding a surprising amount of profit and cash. An honest and robust diagnostic process will generate a list of opportunities and challenges that need to be addressed and acted on. Each of the five areas can present between 10 and 15 solid items.

As a team prioritize the list. Some action items will be more impactful than others so the list has to be evaluated for the best bottom line impact and for resource allocation. Everything on the list can be done at once so I recommend a 90 day planning format be implemented.

“Why do we need more profit and cash?”

As a leader your team needs to hear why successful businesses must continue to be as profitable as possible. Teams and individuals need to understand that in the face of increasing costs, there are five uses of your profits in any business…

  1. Accelerated payments of their long-term liabilities and debt.
  2. Reinvest in the business with a strategic capital planning and budgeting process.
  3. Reward the team as part of a variable compensation strategy: Bonuses, profit-sharing, etc.
  4. Reward shareholders and owners with distributions
  5. Pay taxes.

What could be done if you were able to increase your business’ net income by 25%, 50%, 100% or more?

If you have any questions or would like to discuss specific ideas and strategies, email me or give me a call.
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