How to Create a Culture of Profitability
Making money isn't the only reason to be in business -- but it's the only way we stay in business. Profitability is probably always top of mind for you, the business owner, but is it for your employees?
If it's not, it should be.
Profit funds raises, bonuses, and benefits; it fuels opportunities; and when the economy is weak, profits safeguard jobs.
You can connect your employees to profitability in much the same way you connect them to sales and service. Show them what works by giving them the data behind it. If you are uncomfortable sharing dollar figures, use profit margin percentages. (Maintaining your margins -- particularly your gross margins -- demonstrates operational efficiency; improving them demonstrates operational excellence.)
A true culture of profitability, however, starts even earlier; it's about who you hire and how you manage them. Every employee needs to be invested with you in building and growing the company. It starts with forging -- not forcing -- the right culture.
Here is our "A" list for what's required:
Attitude: Attitude is everything: Define it, hire it, guide it, nurture it, and celebrate it. Employees usually reflect the attitude of the CEO. You get the behavior you demonstrate and tolerate.
Awareness: We know that the better information we have, the better decisions we are able to make. That holds true at every level. Awareness also means that everyone in the company should be aware of and on the lookout for opportunities to improve profitability. This requires training and retraining your employees to identify profit drivers. They can be as small as a thermostat setting or as grand as eliminating wasted materials, returns, refunds, mistakes, spoilage, and employee theft. Paying attention pays off.
Accountability: It is up to us to establish standards and to hold our employees accountable for maintaining those standards. This is as simple as becoming a better delegator: If you haven't assigned responsibility for a task, it won't get done; if you've given the task to more than one person, you've effectively made no one accountable and it still won't get done.
Authority: Accountability without authority is like bringing a knife to a gunfight. We instill values, shape attitudes, create awareness, and structure accountability. But none of those things will get employees very far unless you've provided them with the authority to make decisions that will impact both transactional and lifetime profitability. Authority must be earned but you need to give people the opportunities to make mistakes and then learn from them.
Alignment: You could be the most talented driver in the world and drive a car with the most powerful engine, but you won't go very far or very fast if your wheels are aimed in different directions. It's the same at your company: Without a shared goal, sense of purpose, and common benefit, you're all going in different directions.
Here's how it works in practice:
Several years ago, Four Hands, a home furnishings importer based in Austin, Texas, decided to face head on the challenge of managing costs and increasing profitability. To do it, they started using quarterly themes to drive specific goals.
They started with the 777 Challenge. The goals were: $7 million in top line sales, $7 million in open orders (a leading indicator of future profits), and $700,000 in bottom line profit.
They prepared for the campaign by asking each employee to answer 3 questions:
- What can I do?
- What can my department do?
- How can my department work with other departments to reach the goal?
The company posted its progress each day and it reached all three sevens with three days to spare. The quarter was a milestone for the business and set a new standard for profitability. Oh, and what a party they threw!
Have a small business finance question for The Money Dept.? Hit the comments or email us using the contact form under our photo.
Read more from the Money Dept.: