Grow Your Business

In this guest post for BizWizTV, Charlotte CPA, Chad Bordeaux, discusses two easy ways that small business owners can increase the value of their businesses. The value of a business is one of the most overlooked aspects of an entrepreneur’s growth strategy.

Chad is a Charlotte CPA who works with small business owners and individuals on a monthly basis to provide them with proactive guidance and advice on how to grow their business, minimize their tax liabilities and grow their bottom line. Chad is also a primary contributor to his firms blog – Beancounter Ramblings You can find our more about Chad by visiting his profile here: Chad Bordeaux

In working with small businesses on a daily basis, I am constantly alarmed at how few of them are actually using the numbers in their business to drive the growth of their business.  It is rare that I meet a small business owner that can tell me exactly what his numbers were last month, much less one that knows what his key economic engine is use it to manage his Company.

In it’s simplest terms, your company’s economic engine is that one key ratio that your company can focus on that will have the most sustainable growth impact.  This ratio varies from industry to industry, and even from company to company within the exact same industry.

In Good to Great, Jim Collins detailed how Walgreen’s switched its focus from profit per store to profit per customer visit.    Walgreen’s business strategy was convenience.  They wanted to make it as convenient as possible for their customers to get to a Walgreen’s and to shop there.  This would result in many stores close together within a geographic area which had a negative effect on profit per store.  On the other hand, profit per customer made sense because it was a true indicator of the customer experience.    Another advantage is that it is much easier for store level employees to focus their efforts on the goal of profit per customer than profit per store.  Each and every employee that comes into contact with a customer has the opportunity to influence this ratio.

As stated earlier, the economic engine for your company may not be profit per customer – there is a good chance that it is not.  Some companies use a measure of employee productivity- such as profit per employee as their economic engine.  Nucor uses profit per ton of finished steel. Kroger uses profit per local population and Southwest Airlines uses profit per place.  Many restaurants use profit per square foot.   The first step is to determine what your key economic engine is and focus your efforts on it’s continual improvement.

Chad is a Charlotte CPA who works with small business owners and individuals on a monthly basis to provide them with proactive guidance and advice on how to grow their business, minimize their tax liabilities and grow their bottom line. Chad is also a primary contributor to his firms blog – Beancounter Ramblings You can find our more about Chad by visiting his profile here: Chad Bordeaux

Do you know where to focus your growth efforts?  Do you know what your break-even point is?  Do you know how your numbers compare to your peers – and not just your revenue numbers?

These are questions that I work on daily with small business owners.  Most business owner’s think in terms of one line item when they try to grow their business – revenue.  This is logical choice.  After all, if revenue is higher, you must be making more money, right?  Wrong.  While this may be the case in a perfect world, it often leads to business owners struggling for years to make ends meet when the mathematics of the business just do not work.  What can be done to fix the problem?  It’s simple.  We just have to change the number so that the math works.

We recently helped a client who had been consistently loosing money for seven years – at a rate over of about $175,000 per year.   When talking with the client, his solution was that he needed more sales.  If he could just get more sales, he would be profitable.    We sat down with him and did a thorough break-even analysis.  Using his current cost structures, it was going to take nearly $3 million in sales for him to breakeven.  He was currently sitting at $700,000.   The answer to his problem was not sales, it was his cost structure. Read more »