There are 4 key focus areas for every business owner. Today we’re going to tackle resource optimization.
Are your resources being optimized?
I’m not talking about people, because I have a little bit of cultural bias against referring to people as resources. I’m talking about your financial resources, the use of your assets.
What I find is that a lot of business owners don’t know how to read financial statements. I have an accounting background, which is really helpful in demystifying finances for me. But I find that a lot of business owners are dependent on CPAs to explain financial statements. And, frankly, I think they’re a little embarrassed to ask too many questions.
Without guidance, it can be hard to understand how your balance sheet and P&L interact, or how to understand a cash flow statement. Understanding the different ways to read a balance sheet and an income statement can be confusing.
That’s why we like to sit down with our clients and do a monthly financial review, often including their CPA. We’re there to discuss the reasons behind the numbers and try to be forward thinking. Coaches who want to be effective need to have clarity looking through the rearview mirror, but that look through the windshield that a strong CFO or coach provides is really important.
You need to be able to find a few levers that you can pull. What are the ones that really drive the business?
For example: A client in the high-end pool and outdoor living space business came to us and said, “I have a cost problem.” He was right, so we focused on the cost of goods sold, because there was waste in the process. We identified inefficiencies, limited usefulness in subcontractors, and growth possibilities in how well their project managers were operating. So, among other things, we created bonuses for project managers based not on sales but on the profit margins, which they could control.
As you’re looking at your financial statements, make sure they are strategic tools. It’s amazing to me how often I ask business leaders about their statements and they haven’t gotten them for 2-3 months. They are looking ahead flying blind. How can you run an organization if you don’t know what the scoreboard is? I can’t imagine them, knowing how competitive they are, being willing to play sports without a scoreboard. How are they operating like this? Are you operating like that?
You need to have a scorecard, and it needs to be accurate. Then you need to notice the levers that are most important to your business success. Those differ based on your business lifecycle, your industry, and your strengths. Using your assets to the optimum level is absolutely one of the key components to effective business management and leadership.
Resource optimization is one of four areas that business owners should focus on. Read about the other three.
–Jim Wiginton is the founder and managing partner of Broad Insights, an international business coaching firm based in Greenville, South Carolina. Jim possesses a wealth of business expertise, much of it gained as an executive for Michelin North America, Plastic Omnium, and Alfmeier Corporation. He has more than 5,000 hours of coaching experience, and a Doctorate of Business Administration from Paris School of Business.