Last week, in one of our workshops, I introduced the idea that cash in a business is a representation of an owner’s ability to convert raw inputs (materials, equipment and people) into a product or service that a consumer was willing to pay more for, than what it cost to convert it.
Sounds pretty simple. Generally, every business owner would like to make more money, so what are some of the areas you can focus on to do so? Here is a list of things to think about:
- The cost of your raw inputs – How well do you utilize your equipment? How well do you utilize your people? How effectively are you buying your materials and services? How much is it costing you to finance things like inventory? Are you able to attract the right people?
- The effectiveness of your conversion process – How much waste do you generate in your processes? How often are you “stopped up” because you don’t have the right materials, people or equipment? Do you have the right equipment, or are you making due? What is the true cost of your conversion process when you take into account all the costs?
- How clear is your market channel – Do you have a channel? How clear is your channel in what you do? Do they understand the value in your product or service? Are they willing to pay the true cost of your product or service or are you competing with a different option?
These are the examples of questions any business owner faces on a day to day basis, however they are often difficult to answer, especially when you live inside your business.
A business owner is in business because they truly believe in the product or service they provide and thank goodness, they do! This said, sometimes they question why they aren’t able to make more money. The simple answer is…they ignore some things. Here are some examples, of ones we often see:
- They ignore the waste generated throughout their process and don’t factor it into the conversion cost.
- They price based on what they believe is their competition and not based on their own cost.
- They don’t have a defined market channel and because of this, try to be everything to everyone.
- They don’t factor in the hours they put into the conversion process themselves…in other words, they discount their own labour.
- They make due with what they have, hoping things will get better, just around the corner.
- They discount products or services in the hopes of getting more work later on.
If you want to make more money in your company, it requires looking at your company in a different way and to being willing to change somethings. I will always say that all business owners should celebrate the businesses they own, because it isn’t an easy journey and it is something to be proud of. On the flip side however, it is a journey and the clearer you get, the easier it is to see the opportunity.