Staying fiscally fit

March 2013 » Columns » BEYOND WORDS
Gerry Salontai, P.E.

Most of us endeavor to stay healthy and fit. We watch what we eat and take on some form of physical activity, but we constantly have to work at it. Keeping in shape as a company is not much different; it takes focus and persistence. But just like in our personal lives, we sometimes lose that focus and gain too much weight.

During the run-up to the recession, some companies were carrying more staff than they needed and invested in areas that didn't always bring a return. Then it caught up to many and a rapid "weight loss program" ensued. Companies lost weight by trimming the excess out of their organizations with much of this coming from labor costs. Meanwhile, a number of firms navigated through the downturn because they are always fit.

Since that bottom about four years ago, most companies not only have recovered, but have been doing pretty well. This is underscored by several industry financial surveys that recorded the best year on record for growth and profit last year in this industry. I can personally vouch that the health and strength has returned to many companies. They are spending more on talent acquisition, strategically positioning for growth, re-establishing professional development programs, and awarding more incentive compensation/bonuses to staff.

But are companies taking on weight again? There's a good chance some are – claiming they need to make up for lost ground. Yet some are as fiscally fit as ever. What do the ones that stay fit do that's different?

First and foremost, leaders of fiscally fit companies focus on the financial fundamentals that make a difference – with efficiency, labor structure, pricing, and cash management leading the pack. Labor is the highest and most controllable cost in our business. The best use a philosophy of "running a person short" when sizing the company at each level while ensuring the ability to deliver and maintain quality. They rely on revenues that are "certain" as opposed to revenues "hoped" for. I find the companies that are always fiscally fit place a high emphasis on getting the right people in the right positions. They also take a more cautious approach to "investment" hires – those people that can bring new sources of revenue. That's because many claim to be able to deliver but few actually do, and thoroughly vetting their potential is crucial.

The leaders of fiscally fit companies make consistent and prudent investments in the people and tools or equipment they need. People are the crucial component in a professional services company. Continuous development and rewards that recognize their achievements is important. The key is to avoid wide variations in the training and development approach over time. Turning programs on and off creates uncertainty about the direction and commitment of the company's leadership, and programs that far exceed the capability of the company to manage and afford often languish. There is a natural tendency to react and create glorious programs and then abandon them when things get tight. A modest approach that reaches those that need development without overinvesting is always preferred.

Taking the same approach with the tools and equipment your staff needs to accomplish the work and investing in those that actually bring value to your clients' needs is key. Avoid the "build it and they will come" and the "bleeding edge" investment approaches.

It goes without saying that leaders who desire to create long-term sustainability are also mindful to retain a good portion of their profits. They re-invest properly in areas that will diversify and strengthen the company while continually strengthening the capital structure. The latter is particularly important for privately held, employee-owned companies to ensure the company can transition from one ownership group to another.

Fiscal fitness in business is similar to our personal efforts to stay fit. Constant work and vigilance is needed. It requires productive paranoia and fanatic discipline. The key is to make fitness a priority in your business.

Gerry Salontai, P.E., leads the Salontai Consulting Group (www.salontai.com), a management advisory company focused on helping companies achieve success in the areas of strategy, business management, and leadership. He can be reached at 858-756-5169 or gerry@salontai.com.

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