Red Ink: 10 Reasons Why

Both in the C-Suite, and in the turnaround world, astute executives look for not just the easy fixes but the deeper, latent, causal issues and factors which come into play to dampen corporate performance, and cause the bleeding of red ink.

Corporate performance can consist of myriad variables which stagnate the enterprise.

Here's a "ten" list of some, not all, of the reasons why your company isn't profitable. Some of them are very basic, but they bear repeating.

?1. Your expenses far outpace your revenues.  Well, duh, right? On one project, the company had consistent monthly losses for 2 1/2 years. At what point does management dig its heads out of the sand and acknowledge reality? Make, and stick to, budgets and do variance analysis (budget v. actual), have monthly and/or quarterly executive and board meetings, and by all means, skip the denial and share the real results so everyone isn't asleep in la la land. By all means, it is critical to run proper income statements and understand the differences among direct, indirect and overhead costs. Know your true cost to deliver a product. On another project, I had to inform a CEO of a $300 million company that his product which sold for $176 cost $191 to produce. Not an enjoyable moment for either one of us, but it was the truth. Truth be told, it was his job to know that long before it became mine.

2. You are mistaking gross profit for net income. Sure, that project you took a $10,000 purchase order in on, has $4,000 in gross profit. That's not the issue. The issue is it's costing you $5,000 in overhead to support the project, so it's a ($1,000) loss. Note the brackets. Again, watch the overhead. It's tempting to wish and hope that at the end of the month, quarter or year, things will take care of themselves.  They don't. You do. You must.

3. Your management is mis-management, missed- management or missing management. Some or all of your management needs to be shaken up, changed out, realigned or maybe just tuned up. Einstein's old adage about insanity being doing the same things and expecting different results applies here. Sort of like keeping the same management team (or ownership group) and expecting things will change, or performance will improve. Lee Iacocca would say, "Lead, follow, or get the hell out of the way." Let's all row in the same direction.

4. Your accounting isn't real, or isn't real reliable. If your controller is out of control, then your company isn't going to be far behind. Actually, it will be further behind, especially if the books aren't closed, or if the books are incorrect. More companies wind up in bankruptcy which costs them millions because they tried to save thousands by hiring the fourth pick CEO or CFO. There's no "fail fast," "fake it till you make it," "learn on the job" or other nonsense here. Hire the best people you can and pay them what they are worth, if not more, so they stay.

5. Your sales team is selling themselves long and selling the company short. They are chasing top-line revenue, or activity, or other things like conferences, travel and adventure, or networking for their next gig. If they aren't delivering strong, consistent margins on the products, services and projects they are giving customers, they are shortchanging the company's profits. Make them more than doorbell ringers, make them part of management and expose them to other areas of the company and targeted training so they understand the operational and financial aspects of the company. This will pay dividends for the sales team, for the company, the management, and most of all, the customers.

6. Your management team lacks cohesiveness. If there aren't regular meetings to gather, discuss, analyze, propose and acknowledge reality, in an environment free of blame, browbeating and ego bashing, your company is going to lose money, and perhaps more. The mission should always be "what is best for the company," and about the overall entity and the value created for customers. Managerial aspirations and ego don't belong at the staff or board meeting, they belong in the sandbox. Again, let's all row together.

7. Time for a new CEO or owner. One mark of a leader is to know his or her limitations and when it's time to go. Even if you own the business and it isn't going well, hire a new captain, or at least a navigator. If you're losing money, you need to hire an expert at turning businesses around to get back on course. And that person will likely point out some very candid and direct realities about your company, your team and your management ability. If you're the CEO and/or owner and your skin is too thin to hear this magnitude of truth, it might be time for you and/or other executives to bow out, and to change perspectives and ideas. Just because they are CEO's, doesn't mean they have infinite shelf lives. Change is good.

8. Wrong product/service/offerings mix.  You may be selling a variety of capabilities and products or widgets to your customers, but just as with the 80/20 rule (and other mantras and concepts) to describe disproportional weighting of problem/opportunity and resources/risk/reward, there are activities in your organization which consume resources and have little or no, or worse, negative return. Cut these time and resource waster products and services loose and focus on the stuff you make money on, and always, always be introducing exciting new ideas, products, services and most importantly, solutions to customers.

9. The tail wags the dog. (Parts a. and b.) First,

• a. Your employees are important to you, but they are leading you, and not the other way around. Don't mistake entitlement for empowerment. When you tell employees with assigned vehicles not to smoke in them, to record mileage and expense logs, truck and HOS logs, require a clean warehouse and ask for inventory reports and you are ignored and anarchy abounds, you have lost control. It's like Animal Farm meets Lord of the Flies. Drucker warned us that "culture trumps strategy" every time. Good or bad. Endeavor to be a learning organization.
• Some customers are abusive. Know when to end the relationship with customers who are too demanding, consume too much of the company's resources and mental and emotional bandwidth, demand price concessions and thin or no margin work to be performed and are slow to pay. Better to scale the operation back and diversify exposure by having more productive and profitable relationships with a diverse customer base. Remember, you're in this to win, and customers who expect us to lose all the time need to be fired.

10. Zero plan. No vision. No mission. No strategy. It's like a rehash of high school physics. Remember Newton's first law? An object at rest stays at rest and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force. So without "disruption," last decade's nebulous business buzzword, there is no change in speed or direction. You're doing the same stuff with the same people and fighting the same battles. As is often said, without change, nothing changes.

Changes in speed and direction aren't the entire answer, but it's a good place to start, and dealing with truth and making necessary changes can get you back in the black.

Copyright 2020 Paul Fioravanti; all rights reserved.