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Reversing The Death Spiral of Profits

The story of Peter the Printer (link to death spiral) is a gloomy but the Death Spiral of Profits can be reversed.

You need to raise your expectations of the profit your business could …and should be generating.

The key question is:

“If your business was working well, how much profit should it be making?”

I know from personal experience that if a subsidiary of a big group is considered to be under-performing, it quickly comes under the spotlight.

There are crisis talks with two key questions:

  • What happened and why?
  • And what are you going to do about it?

There is an implicit or even explicit ultimatum…fix it or else!

If there’s no improvement, the Managing Director or CEO will be fired perhaps with some of the other senior managers quickly following when the new CEO starts.

These actions force a change of thinking and lead to new things being done in the struggling business…it doesn’t always go right but often you can see big improvements.

A business owner doesn’t have the big brother of a Group head Office looking over its shoulders. It’s normally all down to the business owner.

A Business Owner Should Learn To Wear Two Hats

I want you to wear two hats…

  • To be the major shareholder; and
  • The CEO/Managing Director.

And when you are wearing your shareholder hat, you need to think like a big group, be tough and demand action. Hold your CEO/MD self accountable.

It’s only by thinking “This is not good enough” that you can challenge your ideas and change.

What If You Don’t Hold Yourself Accountable?

If you allow yourself to drift into the death spiral without resolving to do something about it, you may have an easy (but poorer) life for several years.

But if performance keeps going down, there will be a day of reckoning and it’s going to come from one of three stakeholders:

  1. If you have a bank loan or overdraft, your bank manager is likely to become increasingly concerned about the trends in your bank account.
  2. If you keep telling suppliers you’re going to pay them tomorrow, but tomorrow never comes,you’re going to find supplies suspended, you’ll be taken to court for payment of debts, your credit rating will be ruined and new suppliers will demand cash up front.
  3. The day will come when you’re unable to live hand to mouth and scrape by paying the payroll each month. You might be a couple of days late at first and blame it on bank error but your employees aren’t stupid.

Return to P1M2 What Is Profit

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