Think of your business as a three-legged stool, with the legs being operations, marketing, and finance/administration.
Now picture yourself, the leader, sitting atop that stool. If the legs are the same length, the stool is stable and you can easily shift your position...even stand on it. When one leg is too short or too long, the stool is unstable and hard to manage.
Here are some examples of unbalanced business situations. A company expands facilities and operating capacity with borrowed money, but fails to add effective marketing effort. Sales remain static. A cash shortage occurs as higher facility overhead costs chew up working capital. The company misses purchase discounts, lowering margins. Crisis looms.
Another company with aggressive marketing outpaces operational capacity and working capital. Hurried processing causes high returns. Good customers leave, replaced by less desirable accounts at lower prices. Accounts receivable slow down and margins suffer. Profits and cash disappear.
Cost-cutting then lowers customer satisfaction. The moral is that unplanned growth can be dangerous to your firm's future health.
Focused, practical planning is the key to maintaining balance and profitability. Before increasing sales, consider the financial and operational resources available. Don't take lines of credit for granted. Bankers can become stone deaf to pleas from highly leveraged companies, even when the need is to support profitable growth. This is particularly true if your financial ratios are lopsided and the economy is weak.
Does this mean that growth is impossible? Certainly not! But growth is easier for companies in a balanced condition. A balanced company will be better able to generate the added capital needed for greater sales through retained earnings. And, higher capacity utilization usually means greater overall profitability.
Companies that are short of cash, capacity or sales should first regain their balance and control before attempting expansion. Good operational business plans help management maintain the critical balance between marketing, operations and finance/administration.
Remember, there are only three basic things you can do to positively affect operating profit and break-even point:
* Increase profitable sales;
* Improve margins; and
* Reduce fixed costs.
An almost infinite variety of specific options exist within these basic moves, however. Accurate, up-to-date information and careful planning really are essential for profitable growth.
Each company has unique goals, challenges and opportunities. There are no ``pat'' answers when it comes to strategies and tactics. Just be sure to maintain your balance while planning for your company's future.
Richard P. Morgan is a certified management consultant and president of Dallas-based Morgan Marketing Solutions Inc.