By: Rick Phelps, Principal, Synchronous Solutions
Far too often we encounter a fabricator who has grown their business to over one hundred employees, but at the cost of their profitability. It doesn’t have to be this way!
Larger companies should benefit from the economies of scale, not be burdened by excess overhead that drag down profitability.
Companies grow themselves out of profitability because they do not know how to properly do Strategic Planning to lay out a plan for growth. Absent a plan, each hiring decision is dealt with on its ‘own merits’. A need is presented: “We need a person to do xyz that will save us this time and money,” and you decide based on your gut and their ‘perseverance’ to expand your staff which expands your Operating Expense.
Do you know how much Revenue each employee must suppport for your business to be profitable at the desired level? Will that person doing xyz indirectly support that much Revenue? See the article How Much Revenue Should the Business Bring in for Each Employee? to answer this question. This is a number every owner needs to know and understand.
The Annual Strategic Planning process starts with clarity on first your Current State then your Future State three years and one year out. When you know how much you want to grow then determining what will be REQUIRED to grow is fundamentally just math. We have built out the set of models you will need to calculate the timing and cost of adding the necessary Resources to your business.
Knowing how much you will need to spend, and when you will need to spend it, puts budget discussions on a data-based footing. If you hire that person to do xyz, can you afford to hire the Measure Tech you will need in four months or the Install crew in nine months?
If you want to grow your business and grow it profitably, take the time to do the strategic planning. Know your budget, know the impact of growth on your capacities, and know what you can and cannot say yes to.
And remember, you are in business to make a profit, not to avoid paying taxes. When your accountant says you can save money on your taxes if you buy yourself a fancy new company truck, that too needs to be weighed against budget of what you need to grow the business. If there is no room to buy it now, then pay the taxes. You will be better off in the long run.
