Is your financial engine running well?
I asked a client if they had a financial engine and if it was running well. They looked at me with a bit of a puzzled look, questioning what I was asking.
The reason I asked the question is that they had one line of business, but they were looking to expand it and start some new divisions as well. The puzzlement to me was that they were considering all of this when they were barely making any money and had little cash in the bank.
When I explained that, as with an automobile engine, a business’ financial engine drives the business forward, they got it. It pays the bills. It rewards good performance with bonuses and ownership distributions. It should generate cash for future investment. It should enable them to self-finance (be their own bank) and to financially share with all company stakeholders.
We identified their financial engine and were able to significantly improve its performance within 6 months, resulting in much higher Net Income and Cash Flow.
Unsurprisingly, since they identified and optimized their financial engine, they now have the resources to pursue new ventures, which was their desire all along.
I’ll leave you with some questions to ponder:
- Is your financial engine running well (are you profitable, generating cash, and at a minimum, realizing the typical return for your industry)? If you can’t answer this question or the answer is no, it’s time for some very intentional work.
- Pricing sets the table for profitability. Are you focused on optimizing your pricing by selling value verses cost plus?
- Cost containment is vital for financial success. What are you doing to reduce your Cost of Goods Sold (COGS) and Overhead?
- What changes need to be made in your organization to take your financial performance to the next level?
