Owners are often bombarded with many responsibilities and distractions during a given work day. It is imperative for them to stay focused on the profitability of their business. Of every 100 questions owners face, usually only about 20 per cent or 1 in 5 is important enough for the owner to act. The rest of the questions, issues, or problems directed at the owner should usually be handled by a subordinate. If the owner does not have the time to focus on profit who will? Time to focus on profit must be carved out of the day.
Time and priority management are skills that effective business owners must learn and master. To manage time effectively, sometimes one has to be ruthless. An effective work calendar must identify time to complete critical decisions, make important business contacts, and maintain significant customer relationships. A functional organizational structure where employees have only one supervisor and lines of communication are clearly delineated will free up time for everyone, including ownership, as now employees can get an answer from someone other than the owner. Guiding and mentoring managers and supervisors is another way for ownership to reinforce delegated decision-making and supervision, to free up time for more important decisions. Critical financial and operational information should flow to owners in the form of key reports so that decision-making can be aided and be more efficient. Once the organizational structure and information system support the work of the business, the most important work of the owner is to be the owner and the two most important responsibilities of ownership are to protect assets and to get a reasonable rate of return on these assets. Almost everything that an effective owner should do, comes from these two responsibilities.
Protecting assets means among other duties, owners must: maintain compliance with all applicable laws, taxes, and other forms of regulation; maintain enough insurance to cover the needs of the business; have an active safety program complete with inspections and training activities in place to protect the employees; have equipment serviced and preventative maintenance programs in place so that few unplanned work stoppages occur due to worn out equipment; have employee work rules in place along with trained management and supervisory staff to appropriately deal with personnel issues so that costly labor lawsuits can be avoided; have appropriate business office procedures in place to ensure timely invoicing, collections, inventory, and cash management takes place to protect these assets; have drivers trained and company vehicles serviced so that they are road worthy and DOT compliant to prevent road accidents that could claim lives and property; and have reasonable sales management and customer service programs in place to maintain and grow productive and profitable relationships with a business’ most precious assets – its customers.
Getting a reasonable rate of return on your assets means that one establishes an annual profit plan and works the plan to meet or exceed gross and net profit goals. Cash, receivables, employees, inventory, equipment, facilities, vehicles, work processes, management, and business systems are some of the assets that must be made to work for ownership. Owners must also make sure that assets are not wasted. While these responsibilities are primarily those of ownership, all of the leaders and managers in the business must work with ownership to achieve them. These responsibilities are shared by effectively delegating some of them to managers and other leaders in the organization. Accountability and agreement for achieving these should be documented through the use of position descriptions. An owner holds people accountable by setting expectations, by asking for results, and by providing feedback regarding how they are performing.
Profitability is a measure of how well ownership is protecting assets and how effective ownership is at getting a reasonable rate of return on them. Setting profitability targets and measuring if these are being achieved on a reoccurring basis is a good way of measuring the effectiveness of a business. How profitable have you been on a reoccurring basis? Is it time for a tune up?