Business Consulting Services by Steve Pohlit - Lesson5PersonnelDevelopment

"How To Grow Profits by 30% or More in 90 Days or Less" A Six Part Mini-Series: Lesson 5

There are actions you should be taking right now that will mean an increase in the rate of profits for your company. If you are doing the eight week rolling cash flow and financial flash every week you should already have identified those areas of your business that are affecting profit the most. Maybe certain expenses are too high, maybe sales trends are not moving as planned, or maybe product costs have increased and gross margin has decreased. You must be looking at the trends and the cash flow and taking action that will grow profit.

Note: no results are achieved by sitting in meetings and talking or by spending most of your day on distractions that make little difference in business performance.

The data that I have advised you to prepare and work on will guide you to higher profits. Now having said all of that, there are times when additional detail is needed in order to finalize a decision. For example, in the restaurant industry there is a line item labeled food costs. Now let’s say food costs are targeted to be 30% of revenue. Let’s also say that total reported food costs are at 30%. That does not mean all is well. You have to go deeper and look at cost trends by category and by item and set out new aggressive goals regarding the cost of an item as a percentage of sales. Sticking with this example, you may find that costs are rising because of transportation cost increases. Well so maybe you cannot get lower food costs from any supplier. Your alternative is to increase the selling price or cut costs in other areas. Accepting lower profits is not an option. In conclusion, the profit is in the detail.

If you have not done the first four assignments, stop and go back and do them. This course is sequential. Each session is built on the base developed in previous sessions. If you don't have the right foundation, the building crumbles.

Today we will cover human resource management and compensation alternatives. This may be the most important topic of all that is covered in this course because nothing happens in your business without the support and cooperation of your employees. (If you are primarily an entrepreneur, working on line then please subscribe to The Roadmap To Internet Profits Course at www.theprofitexpert.com) Of course you are welcome and encouraged to continue participating in this course. The human resource principles covered here apply to every business. At the end of today's session you will need to meeting with employees to announce your new or enhanced employee policies and procedures.

Steve’s Law of Increasing Profit Part 1:

The most significant opportunities for increasing profit are found in the detailed transactions.

A mini course is viewed by some as a teaser for a more comprehensive book, manual, or consulting project. I don’t have a book or manual finished to sell you and while I am always interested evaluating new clients, you will be able to take action to achieve improved business performance immediately with the information in this series.

Your comments are encouraged and welcomed. I would be pleased to answer your questions once you have completed evaluating all six parts of this series. There is a link for the additional information I will need in preparing to address your questions at the end of the course. Let’s get started:

Here is a big secret that is well known and successfully practiced by very few companies: show the people who do the work and drive business performance to meet or exceed profit goals what is in it for them. Few companies have a rational pay for performance program. Here is what it takes to make it work:

Last week your assignment included the development of an organization chart. That should now be finalized after you make sure it accurately reflects the reporting relationships that are actually in place that result in the work getting done. Soon you will distribute this chart to all employees.

Set your pay for performance rules. In all my clients I include a line labeled fixed return on investment. On the income statement this is an item of expense. That number varies but it is never less than 3%. Once this is determined, the business plan can be structured for a net profit before tax at a lower percentage than normal – say 2% since 3% is already built in. The pay for performance pool of dollars can be developed on anything over 0% or some other number – your choice based on the facts and circumstances of your business. The pool of money available can then be allocated to employees based on the level of their position and the results of their overall evaluation. Whatever rules you finally decide on they should be published to the employee group.

The final step is to formally review all employees and during the review emphasize the profit goals of the company and what is in if for them should the base profit goals be exceeded.

These three steps can involve a lot of work depending on the size of the company. However, this work can result in the highest payback of all actions depending on how well it is defined and implemented. A final note on personnel development: over the course of a year approximately 60% of the pay for performance money should be paid to the employees on a quarterly basis assuming targets are being hit with the remaining 40% or so paid after the final results for the year are available.

Steve’s Law of Increasing Profit Part 2:

Companies don’t make profit, people do. Reward the people who make the performance happen.

Here is a list to the typical meetings that occur under the "The Profit System" method:

Weekly Cash Flow and Financial Flash
Weekly Sales Meeting
Weekly Operations Meeting
Weekly Meeting on Staffing
Bi-Weekly or Monthly Meeting on Accounts Receivable
Bi-Weekly or Monthly Meeting on Inventory
Quarterly employee review and pay for performance update

Depending on your business some meetings that are scheduled for bi-monthly or monthly can be held weekly. In some crisis situations, a meeting on certain issues is scheduled daily. Depending on the industry, other meetings may be necessary. For example: a real estate meeting if your company is building or adding new locations; a meeting on maintenance if your company has a lot of equipment like my trucking company clients; other than liquidity, sales and operations there are no absolutes to The Profit System. You define the meetings based on the key success factors of the business.

A final point on meetings: at every meeting someone must be assigned to take the minutes and issue them within two days of the meeting. The minutes are designed to document the decisions made during the meeting on actions that are to be taken to strengthen business performance. Those actions should be documented, have a person assigned who is accountable for the action and have an agreed upon due date for completion. Then the first thing done at the start of the meeting is to review the minutes of the previous meeting and the status of the implementation of action steps. Hopefully you are beginning to see the built in accountability of The Profit System

1. Update your 8 week cash flow and financial flash to add a new week. This is a rolling cash flow statement and you must update it every week. At this point in the process the target profit should be clear to all management personnel and that it is stated in dollars and as a percentage of revenue. You know have nearly all the tools you need to achieve profit that is 30% or more than the trend before this course started. Furthermore, you have been guided on how to achieve that within a 90 day period. If you are not on track there is something that you are missing and you need to go back to the first lesson and begin to figure out what is wrong.

2. Distribute the minutes from the previous week's meetings within 24 hours of completing the meetings. The meetings you should be having weekly are cash flow and liquidity and sales. Meetings that generally are scheduled for once every two weeks or possibly monthly depending on your business include: inventory, accounts receivable, staffing, fixed assets, maintenance. Note any meeting can be scheduled to occur more or less frequently depending on the significance of issues affecting the business. There are no exceptions to scheduling the meetings on cash and liquidity and sales every week.

3. Next week is the final lesson in this six week mini – course. You will receive information on how to manage certain industry specific issues and final comments on achieving and maintaining elite profit performance status.

5. Review and modify your 12 month forecast of revenue and profits based on current trends. It is important to “set the bar high but achievable.” In most cases the plan is higher than the base pay for performance plan. Note the number for your eight week cash flow and financial flash should be consistent with a calendarized 12 month plan.

Shameless Plug Number 3: I have been through this process numerous times. I know how to guide most companies to achieve great results fast. I know where to look for the rugged rocks that can damage your ship. I can get you a fast return on your investment in my fees. Most client hit number much greater than a 30% increase in profits.

This is Steve Pohlit and my number is 727-587-7871. Email Contact I’ll meet you at the next lesson which will be in your email in about a week.

PS I have recently developed another mini-course: The Roadmap To Internet Profits. It is a six lesson course also. You are invited to register at www.theprofitexpert.com