Does this sound familiar? You want to grow your company, but you’ve hit a wall. Or maybe you’re trying to make your company easier to run but can’t see how. If this sounds familiar, you’re like 81% of family business owners (source: CoreValue Research).
The difference between companies that are growing and those that are not is the strength of their growth and equity value drivers. Do you want to learn about a proven process for changing your business so that it will deliver sustainable growth, while also making it easier to run?
Building on an 18-value driver methodology born at MIT that defines best practices, we are ready to share this proven process. The process helps all senior executives, including business leaders seeking to recover from the COVID crisis, those looking to make their business easier to run, those looking to drive growth, and those preparing for M&A. In short, the process applies to you.
This article is intended to help you understand where to focus energy to create a business that generates predictable profits and cash flow. A business with predictable profits and cash flow is a launchpad for growth, is easier to run, and maximizes value to its shareholders.
The 3 Dimensions of Business Growth™
To understand becoming a growing, valuable family business, you must first understand the 3 Dimensions of Business Growth. Strong companies deliver the following:
- Predictable Profits & Cash Flow
- Predictable Revenue Growth
- Predictable Equity Value
Turn Your Family Business Into a Launchpad for Growth
You can’t launch a rocket with a slingshot. If you want to grow, you need a launchpad. The launchpad is cash, and this extra cash comes from profits. How will you create high confidence that your business will generate the cash you need? By creating Predictable Profits & Cash Flow — your launchpad for growth.
Consider getting independent advice about creating the systems for delivering cash to the business engine. Similarly, on-demand expertise is available that will help you calculate how much growth your business can afford, ensuring that growing your business doesn’t burn up all of your cash.
The Gears in your Family Business Engine
To create Predictable Profits & Cash Flow, you need to understand your business engine:
- The gears inside the engine drive growth. You should be able to list the gears, and measure how strong they are. This is the same as calculating a confidence score for predictably generating revenue and profit going into the future. The average confidence score from analyzing ~25,000 companies is only 57% – and only 11.2% score 80% or more.
- Weak gears (growth drivers) are bottlenecks to growth.
- There is a proven methodology, born at MIT, used to analyze your growth drivers.
- Consider this: odds are almost 89% that there are easily identifiable bottlenecks to growing your business.
- What would you do with this information?
- Would it help you to unlock growth?
Although the methodology has 18 gears, aka growth and equity value drivers, let’s focus on those critical for creating Predictable Profits and Cash Flow. As you read each one, ask yourself, “Can I prove to an impartial outsider that I am doing better than my competition?”
The “impartial outsider” is the market, and the market only rewards top performers.
High-Priority Growth Drivers
Here are the high-priority growth drivers for generating predictable profits and cash flow:
- Senior Management: Your business has a leadership team/individual in place to realize the company’s vision and mission while helping the shareholders reach their objectives.
- Human Resources: Your business can find, develop, and retain quality individuals that enable success in all aspects of your business.
- Recurring Revenue: Your business can rely on a portion of future revenue from contractually committed customers.
- Margin: Your business enjoys gross and net margins greater than the industry norm.
- Financial Statements: You produce both an income statement and balance sheet monthly by the 15th of the following month; You run cash flow statements weekly. Further, forward-looking operating reports are routinely generated and used by management to predict your business’s performance and make operational decisions.
- Sales: You have a sales plan and repeatable sales process to deliver your business’s revenue goals that are well-developed, managed, and executed.
- Operations: Your business can deliver on the sales promises made to the marketplace and do it in a systematic and process-driven manner.
- Customer Satisfaction: Your business tracks and uses key measures to meet customer expectations at all levels.
Business Owners and CEOs who implement these types of best practices are growing revenues by an average of 21.63% per year.
This article is part of an ongoing series. The first article can be found below:
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