I was going to cover the tax bill this month, but as I was writing this, it had not yet been completed to the point where it could be sent to the White House for signature. I do, however, know there are a lot of features in the bill that benefit contractors, such as increasing direct write-offs of fixed assets; potentially lower tax rates depending on your tax structure; and the ability to use cash basis accounting for tax purposes. There are others, as well, and we will do this review geared to your business as soon as the bill is passed.
So instead of covering the tax bill, I thought we would cover performance — especially how to deal with it, both good and bad.
Whether you’re starting at the bottom of the rung or are somewhere near the top, there is one thing I believe we all want and that is to improve performance. So what if I told you there is a way to improve performance that is virtually 100% guaranteed to deliver better operating results, a stronger balance sheet and increased cash flow? Interested? You should be. Does it work? Sure does. Is it cheap? Probably not.
A Group Effort to Boost Operating Results
What I’m talking about is getting 15 to 20 contractors who are not competitors but do similar types of work (we’re not talking revenue size) who are willing to work together to improve the group’s operating results. This formal Performance Group would meet at least three times per year for a two-day meeting to discuss:
- operating results,
- personnel metrics,
- machinery costs,
- profit margins on the work you do,
- the makeup of your balance sheet,
- use of the latest technology,
- and problem areas a certain member may have encountered.
Not only would the group cover each quarter in the year, it would cover the trailing 12 months, which is a great way to spot trends.
Sounds good so far, doesn’t it? But there must be a secret sauce required to make it work. And there is. The secret sauce contains three components:
- The company CEO or COO has to attend every meeting.
- The group has to agree on a profit model and work to attain profit model levels.
- A third party has to prepare a financial composite for each meeting to cover participants’ operating results in a format where the results can be compared to those of the other participants. A gap analysis would also be prepared to display where you stand in terms of the profit model applied to your business.
I know what you’re thinking. You’re wondering “who has the time to do this and attend every meeting? And who can afford to hop on a plane and stay in a hotel for six days a year.” Am I right?
But I know these programs work if you participate as noted above. In fact, I work with a few of these groups and am totally amazed how much useful, practical information is obtained from each meeting, which will pay for the meeting ten times over.
We meet three times. All the same CEOs or COOs attend. They have been doing this for 10 years, and they all say “I paid for the meeting in the first 10 minutes of the meeting.”
We spend half a day going through and discussing the composite, including the gap analysis. The second half of the first day covers a special topic agreed to by the participants. The first half of day two is devoted to ideas presented by each participating company that can increase profits, reduce costs or deal with any number of problem areas encountered in the business. I can truthfully say I am impressed every time by the passion the participants put into these presentations. And at the following meeting, it is not unusual to hear that someone tried one of the ideas and it really worked out well for them. The balance of the day is run by the participants, where they address specific topics or problems they are interested in discussing.
Performance Group Benefits
So what is the No. 1 benefit of the Performance Group program? Drum roll, please!
The CEOs and COOs know their business better than any employee they have. And they know what they have to do to correct problems and meet their profit model results. These participants can return to their company and implement changes in their operations knowing full well that they work. No guessing or winging it. I can honestly say this is the best thing a CEO/COO can do for his/her company, customers and employees.
The second best thing that happens is you have a well-run company looking to implement performance improvements that you know are attainable. Not only will performance increase but so will company value and cash flow.
So if you’re having trouble understanding what you need to do to increase profitability; don’t know how to arrive at meaningful goals; would like to assist your management team to better understand their goals and why they are what they are — then a Performance Group is a must for you. Believe me, the time and dollars spent to participate will be returned many times over.
One other benefit to mention is the relationships you form with people who have demonstrated the ability to run a business. You can call them at any time to discuss a problem. How can you go wrong?
In today’s business world, with the speed at which everything is changing, Performance Groups are a must if you hope to master your business and stay ahead of the game.
