A Profitable Company Will Always Have Positive Cash Flows. Critical Success Factors

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Critical Success Factors

Focusing on the things that make the biggest difference to your future prosperity.

(Note, although this article was written in early 2002, it is totally relevant. Right now.)

About three weeks ago I was struck by this headline in the morning paper:

“Fed Says 9/11 Hurt Economy.”

Wow!

“What did I miss here?” Was this news? USA TODAY thought so. I’m shocked that the Fed saw fit to announce this.

And this week, another one: “NBER Confirms Recession.”

Hey, Greenspan! Get out and talk to people. People all over the country tell me that if they even break even this year, they will consider it a victory. If it’s not a “recession”…

But have you ever wondered what it takes to end a recession? Textbook Answer No: Two consecutive quarters of growth. Have you ever wondered what led to those consecutive growth quarters in the first place?

When enough people get fed up with the economy shutting down, the economy improves.

Companies need things. They need new people or new services like marketing and sales. Some require new premises or new equipment. You might be saying something like “We really need this or that but we’re not spending another dime until the economy gets better.”

So we end up with a cascade effect where you wait for someone else to make the first move — and the economy spirals downward — getting worse and worse — until…

Until people start saying, “I’m tired of this,” or “I can’t wait anymore,” or “Let’s go.” And as if by magic, people start spending money again and poof — the recession is over.

I’m a growth strategist — I help people find the best way to build their businesses and make more money. I would like to know when this recession will end, but I am not an economist and this question is very difficult. Instead, I ask how long people can sit on their duff before they finally get so tired that they have to act again.

I hope people will get there early next year. Although the Fed had just authorized it, many businesses declined in the third quarter of 2000, and have not started since.

Aren’t you tired of doing nothing? Don’t you want to restart your business? Of course you do. What do you think everyone else thinks?

(Side note: This forecast is consistent with “professionals” who say the recession will end in mid-to-late 2002. This will only happen when businesses and consumers start spending early in the year.)

So what are you going to do about it? What are you personally going to do to end the recession?

What are you going to do to earn money again? (I agree with President Bush. You don’t have to put that flag away, but the most patriotic thing you can do right now is start spending money. If enough people take a leap of faith, the world economy will take off. Rocket.)

Are you going to get ready?

Now is a good time to prepare yourself for the next time when people decide to start “doing business” again.

Last month I shared a way to polish and rethink your business strategy. Here I will quickly review the critical factors that will determine your success.

A plan designed as a platform for growth and profitability must consider each of the following critical success factors:

Money Factors: Positive cash flow, revenue growth and profit margins.

Acquiring new customers and/or distributors — your future.

Customer satisfaction — how happy are they?

Quality — How good is your product and service?

Product / Service Development — What is new that will increase business with existing customers and attract new ones?

Intellectual Capital — Increasing what you know is beneficial.

Productivity — How efficient are you? How effective?

Strategic relationships — new sources of business, products and outside revenue.

Employee attraction and retention — your ability to expand your reach.

Sustainability – Your personal ability to keep it all going.

Ask these three broad questions for each element.

1. What can you learn from last year’s experience in this component?

What did you do right? what worked Always start with this question. why Because it is positive. So! It’s shocking how naturally people turn to negativity. Even if I ask – literally – what you did right, more than half the time people respond about what they did wrong.

How can you do those “right” things? How can you make them even better? How can you apply what you have learned in this field to others?

After completing this line of questions, ask, What did you do wrong? Not to beat yourself up — to make sure you don’t repeat it and find ways to correct or improve the process.

Next, ask what is missing. What can you add that will improve your effectiveness?

(Effectiveness can be expressed as the ratio of OUTPUT to INPUT. Efficiency, on the other hand, is how many INPUT actions you perform per unit of time. For example, you can increase the number of calls made per hour — that means increased efficiency. You can increase sales volume for the same number of calls. — meaning increased effectiveness.)

Random examples of things missing include consistency in marketing, new products or services, more sales people, sources of new leads, employee (or self) development plans.

2. What are your goals related to this component?

Setting new goals can, by itself, transform your business. Your goals should be bold and dynamic — big enough to inspire you and everyone around you. Goals work best when they are objective and quantifiable. And you must believe that they are achievable – no matter how difficult or impossible they may seem.

Some examples of salient objectives: dominate your market position; Sales doubled last year; Top of the list in prospect mind-share; 100 percent customer repurchase; Three new products were developed and shipped by mid-year; Customer problems are solved in half the current time, a career path for every employee, enough cash for any business emergency.

3. How are you going to achieve these goals?

A successful plan to achieve your goals consists of several components:

Who will be responsible for each goal? don’t you So which executive? Which manager? Which department?

Some factors map directly to a specific department, such as revenue owned by sales and marketing. But factors like intellectual capital or customer satisfaction—they don’t fall neatly into one category.

However, someone still has to ‘own’ the component. Find out who it is. If no single person is responsible then – guess what – it won’t happen.

Whoever accepts responsibility for a particular goal must answer the remaining questions.

Which strategies and tactics have the best chance of achieving the goal?

If you’ve set ambitious goals, you probably don’t know how to reach them yet. This is what makes them brave in the first place. For now, you have to prepare some answers and live with the uncertainty.

And while there’s no guarantee of success, every goal should have an identifiable path with a reasonable probability of getting you there. That path will define one or more activities and milestones you can place on the timeline.

What structural and procedural changes would you make to this component?

Some examples are adding two salespeople or a new assistant. Maybe you establish a new reporting line, eliminate paper memos, acquire a competitor, or take on a monthly new business quota. Each structural and procedural change will give rise to its own initiatives, which you will also give a timeline.

Are new people needed for this initiative? Need a new job description or add a manager? If you want to add people, put all the finances back into your budget.

All elements, objectives, responsible parties, initiatives, structural changes, time frames, measures and milestones all add up to a strategic plan for the year.

Can you live without addressing each of these factors?

Sure you can do it, but can you get rich?

Yes — you can do that too. But it will be more difficult.

Let’s face it: some companies sell the same product for years without making any changes. See WD-40. The do-it-yourself lubricant niche is completely theirs — all they have to do is take orders and stock shelves. But last year their growth rate was negative 4.6%. Obviously they are ignoring one or more critical factors.

So yes — you need to think about every critical success factor — even if you don’t do anything about it, you have to think about it.

Increase sales but ignore service – what happens to customer satisfaction? It will probably decrease, which will affect repeat sales, your reputation in the market and ultimately new sales.

Improve product quality but neglect employee retention? What will happen to quality next year? It is likely to go down. And then what happens to sales?

As you can see, improving each component contributes synergistically to your company’s survival and prosperity.

Can you do everything at once?

Most businesses don’t have the resources for that, so something has to give — right…

Or you can create another progression.

At this point, have a success in planning — one that gets you to some level of progress for each important element.

This planning task is not as big as you might think from reading above. Yet, you may feel like you just can’t make the time…

Look – any hobbyist can grow a business when the economy is going gangbusters, but growing profits when the rest of the world is in recession takes a purpose, motivation and attention to detail. Having a strategic plan — one that takes into account all the critical elements of success — is a surefire way to improve the odds in your favor.

(To learn more about these critical factors, get a copy of my book, Faster Than the Speed ​​of Change – on our business coaching website – also makes a great holiday gift for entrepreneurs.)

–PL

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