As business owners try to grow their business asset they bump into a range of common issues. However, the management information (MI) that they gather is often what we call ‘vanity’ metrics. As the old saying goes, “Turnover is vanity, profit is sanity.”
When I ask for the MI, most firms can churn out reams of the stuff. Yet when I ask what the MI is revealing about the business the conclusions are delivered with less conviction. Of course you need to know data about your sales pipeline and business written, but most analysis I see at management level is on what happened. There isn’t any insight into what is going on beneath the surface and how to resolve some of the businesses sticking points that are preventing sustainable growth.
As a result, all the solutions put forward to resolve the businesses issues are quick fixes. Let’s look at a few that usually don’t work:
1. If we can just find a bit more business…
Even when we do a deeper financial ratios analysis with clients, the first thought for many adviser owners is that if they could just increase turnover by £200,000 then all their ratios would now be in good order.
This is a pipe dream. Even if they could increase revenue by that much the other costs and management headaches that grow with it can eat up most of the gains. Then you end up with an even larger 7 headed beast of a business but no more genuine efficiency or profitability. That’s not good.
2. If we can just hire that new person…
Inefficiency problems in the back office are often addressed by hiring another body. This doesn’t usually work either, particularly if the underlying cause is poor processes and personal productivity from your staff.
3. If we just had more business writers…
This is another simplistic solution many firms try, thinking that they can just sell their way out of trouble. It doesn’t work.
4. If we just acquire that new client bank/business…
Some businesses believe that acquiring new business is the answer to their prayers. Be very, very careful with this one. Acquisitions can work, but they work best when you have a solid foundation to build on. If the underlying culture and business efficiencies are not in place, more clients and more staff just means more headaches and more risk. Yes, more risk might lead to greater returns for a while, but many firms growing by acquisition face some significant moments of truth further down the road.
The truth is that most of the issues facing advisory firms revolve around business processes and staffing issues. Poor processes mean more staff than necessary, which means poor profitability.
Yet MI that identifies poor productivity is rarely kept or analysed.
A stronger focus on the causes of poor profitability and less focus on selling your way out of trouble is often the first step in getting to the bottom of your business issues and achieving the breakthrough you have been looking for.
I’d love to hear your thoughts on this topic. What are your challenges in this area? How have you resolved some of these issues? Leave a comment in the comments section below or drop me an email to [email protected].
If you want more direct assistance with this or any other aspect of your business drop me a line at [email protected] or give me a call on 0333 939 0027.
You can catch my most recent webinar “Getting Your Pricing Right Once and For All” on Bright Talk. It was recorded on Monday 3rd June but you can still access the recorded version by clicking here.
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