We all like to have a successful, profitable year and do whatever we can at year end to try to finish strong. Of course, we all would be better off if we applied the same effort we make in December to the other 11 months. That being said, I wouldn’t feel too bad if you fall into the December scenario because I find that the majority of companies follow this path.
But since you are reading this in December, there is not much time left to enhance the bottom line or reduce the tax burden. You can, of course, go through the receivables and try to collect all that you can before year end. (The bank will like that.) You also have to go through your WIP to look for billing opportunities or write-offs. And there are always vendors to deal with when you dispute their invoices.
So in the end, we are caught in a dilemma — to max out book profits, or to minimize taxable income. For me, I don’t like to have the “tax tail wag the dog,” and prefer to have a clean set of supportable financial statements when it comes time to renew the bank line. Quite frankly, when you start explaining to your banker why your “real” bottom line is better than what they are looking at, it is a tough sell.
As such, why don’t you try to generate a clean set of 2015 financials to see where you can improve your operating results; prepare 2016 budgets as if you implemented the changes; and then do your best in 2016 to realize those benefits. Of course, you will need some guidelines to work with, which are available from various sources or associations. You can always ask your accountant to help you out with benchmarks and go from there. If that doesn’t work, I am sure Ken Hedlund of Somerset CPAs can point you in the right direction.
How to Make Improvement Happen
Many of you will be thinking “I could never hit those benchmark numbers.” And you would be correct if you don’t try. But speaking from experience, I can tell you that if you ask yourself “How am I going to reach that benchmark number or percentage” and put some effort into the process, you will improve your bottom line. This in turn will encourage you to try this procedure again.
The improvement process has to be a team effort, which means your entire management team and project managers have to buy in to the program. They too are prohibited from saying “we can’t” and can only discuss ways to make improvements. I am confident that each of them has some ideas how to do things better and should get a chance to express themselves. If you are the CEO of your company, when you stop to think about it, you have nothing to lose and everything to gain if only a few new ideas are implemented to start out.
I recently attended a CEO group meeting led by a very experienced consultant and business expert who provided each group member with a set of goals for revenues, margins and costs. As you can imagine, every time the CEOs return from one of these meetings, the internal staff knows some wonderful ideas are coming back with them and they are going to have to tell their particular CEO that the ideas won’t work and can’t be done.
Sick of getting this response, one of the CEOs invited the consultant to a meeting with the company management to discuss his goals and how to reach them. Needless to say, none of the managers wanted to attend but did so because they had to.
The consultant went through how he set each goal, compared the company performance to the goal and showed each department head what had to be done to meet the goal — which turned into a team effort that concentrated on “how are we going to get there.” In short, the managers supplied the means to the end by believing it could be done, and are all diving into the process to make it happen. Now, they may not meet 100% of the goals but I am positive they will demonstrate revenue, margin and cost reduction improvements.
The two-day session noted above will probably turn out to be the best money the CEO spent. And if you’re wondering why I’m so confident they will be successful, it’s because individual members of the group have hit the goals for revenue, margins and cost, which to me is proof it can be done.
So the question for you is: “Where should you be next year in terms of revenues, margins and costs?” Spend the time to find out and start making improvements by prioritizing the goals that will provide the greatest benefit.
So not only do I want you to finish strong in 2015, I want you to finish strong starting in January 2016 and each month thereafter.
Do some homework to benchmark your business, see what technology you can bring to the table, review each process to become more productive and tighten up the accounting to speed up the billing process. And most of all, do this in December to ensure meaningful operating profits in 2016.
Garry Bartecki is the managing member of GB Financial Services LLP and a consultant to the Associated Equipment Distributors. He can be reached at (708) 347-9109 or firstname.lastname@example.org.