Business growth is about changing the organization to do more of what is working and less of what isn’t. Furthermore, it is about equipping the organization, the team, and the systems to maximize results while optimally utilizing resources.
To ensure business growth, companies must become adaptive organizations. Adaptive organizations are regularly engaged in monitoring results and learning how to adjust activities and priorities. They are also focused on resource allocation to improve the ROI continually.
Grow from Your Current Success
Many organizations make the mistake of pursuing growth without a clear understanding of their current success. They compound this error by pursuing all opportunities as equal, the assumption being that any sale is a good sale and that every customer contributes to success. Successful organizational growth builds on a foundation that:
- Includes a clear and quantifiable outline of current financial results and who/what is generating them.
- Clearly, delineates the relationship between cost and activity.
- Defines the ideal customer regarding profitability, the expertise of the organization to serve that customer, and customer buying patterns, values, and other critical characteristics.
Create a Plan for Growth
Building on that foundation, organizations that grow successfully have a plan that includes the following:
- Knowledge of their sustainable, optimal growth rate based on capital, capacity, and operations
- Milestones and timelines based on
- Clear growth goals based on the leading performance indicators
- Cash flow
- Cash reserves
- Analysis of existing capacity
- Identification of bottlenecks and constraints
- Understanding of the timing and cost of additional capacity (investment)
- Understanding of the impact of additional investment on the cost structure, pricing, and management of resources (expense and lag time to recovering the cost)
Start with Your Financial Results
So, what is the starting point to for your organization to grow? It begins by analyzing your current financial results and structuring your financial systems to enable you to access quickly and assess the impact of each new action taken. These measures include new:
- products or services
- capacity – people, equipment, etc.
- activities – marketing, advertising, social media, other things used to identify, obtain, retain, and grow organization client base, visibility, capacity, services, etc.
I can hear your objections about the time, the money, and the effort, especially if your current accounting system is focused purely on tax-based information. From experience working with hundreds of organizations, the time spent is the best investment you can make in the long-term viability of your organization. Many organizations that are profitable don’t realize how much more profitable they could have been. Businesses often leave money on the table; they even take money off the table by not understanding the mechanics of their business. They also overlook insights into how they either generate resources or use them.
From Real World Experience
Early in my career, I was part of the financial team at Ford Motor Company. As part of the team that launched activity-based cost management, I led the team at one of the pilot locations. It was fascinating to be able to take an already robust system of cost analysis and take it to the next step. Each production facility already had cost information on products, but what was missing? While labor and materials were clearly identifiable for every transmission, chassis component, and the entire vehicle, the cost information on activities that generated those products (e.g., the impact of support services, marketing, and other aspects of the business was missing. This information could have been used to maximize profitability by understanding exactly where resources were being used, and thus where costs were being generated.
Cost Structures and Pricing: Key to Understanding Your Business
From the understanding of your costs structure (the cost of doing business) and pricing, you can gain valuable insights into where your financial results are generated. One proviso: Don’t think that you will be eliminating all non-revenue generating activities, because there are some necessary and vital “expenses” that enable you to generate profits—they keep you in business. However, these activities need to be managed to be efficient (minimize cost) and effective (maximize impact on serving the customer and ROI).
Know Your Numbers
The starting point for growth is to analyze your current financial results. So, you can analyze your financials with any bookkeeping or accounting software. However, you need to design the system to enable you to do so. You want to be able to extract information and use it! Whether you use spreadsheets or even pen and paper, you need to analyze your results. In the long-term, you want to modify your existing accounting/bookkeeping structures to enable you to quickly access the information needed to evaluate your business decisions.
Any Software Works, If You Use It Correctly
Clients that use Quickbooks™ (and I have had clients with $50 million in sales using this software) can create a combination of accounts, jobs, and classes to track and segregate costs. They can associate costs with clients, cost drivers (activities) and projects/jobs. For customers, it is not about which software they have but how they are using it that makes the difference.
You can have the most expensive software in the world, but if you aren’t utilizing the functionality of that software, you won’t get results. Most importantly, you need to design your software to track your results from a managerial and cost perspective. With visibility comes the ability to maximize your results.
Modify Your Accounting to Maximize Results
Businesses need to learn how to maximize the software they have. So, you can have the most expensive software in the world, but if you aren’t utilizing the functionality of that software, it won’t help performance. You have to the functions in the accounting software to track your results from a managerial and cost perspective. Furthermore, when you can analyze your results, then you can maximize your resources.
The bottom line for successful organizational growth resides in your knowledge of existing operations and results. What is working (generating profitability and/or optimizing costs) and what isn’t (losing money, inefficient or ineffective activities)?