SPOILER ALERT- This is NOT an article about today's politics. It is, rather, about the risks of focusing merely on one economic indicator, without looking at the whole picture!
Nearly every day, financial gurus analyze and often over - analyze the performance of a wide variety of business organizations. We often hear these individuals discuss an organization's performance in relationship to what are generally referred to as expectations. However, since businesses almost always either under or over perform in relationship to these expectations, an objective observer should realize and understand that there is a significant difference between expectations and facts. In addition, in many cases, there is far too much attention paid to gross revenues, when a company's bottom line is more dependent on profitability, which is the difference between revenues and expenses.
1. When company's prioritize revenues, they often do so at the expense of their bottom line. They do so because if these revenues come about because of ever - increasing costs such as materials, marketing and labor, the organization often does not benefit. The reality is often that, especially in more trying economic times, being overly sales oriented without paying sufficient attention to costs, diminishes and adversely impacts the bottom line. Consider a dentist who grosses a million dollars, versus one who may gross $700,000, but the first one has a 70% overhead, and the latter a 50% overhead. Who nets more, and takes far less risk? Consider a real estate professional, who doesn't control carefully, what he spends on marketing, advertising, etc. What impact will that have on his net income?
2. Often, it may be easier to address controlling costs than increasing revenues. This can be achieved by a combination of factors, including spending more efficiently, being more effective, wasting far less time, and creating a strategy that objectively looks at the relationship between costs and revenues. No one can accurately see into the future, and thus, addressing expenses is often far more reliable than forecasting increased receipts. However, management must take care not to overreact and take draconian measures when more moderate, fiscally responsible approaches are called for.
3. The key to a business' success is their bottom line, not simply in the short term but into the foreseeable future. This means addressing all expenses and examining if one gains the most bang for the buck. Management must be careful that they do not cut the wrong expenses, but merely reduce the bloat, inefficiencies, and seek better and more efficient alternatives. Smart executives generally begin by utilizing a carefully prepared, organized and realistic zero - based budget, that is used as a true planning tool. Sometimes, draconian cuts will address the short term fiscal picture, but if done without planning and foresight, will often adversely impact the long term picture and performance.
Success is not based merely on how much revenue might be brought in, but rather the amount, degree and consistency of the profits. Smart business managers and leaders are far more concerned about profits and sustainability than they are solely about revenues alone
Nearly every day, financial gurus analyze and often over - analyze the performance of a wide variety of business organizations. We often hear these individuals discuss an organization's performance in relationship to what are generally referred to as expectations. However, since businesses almost always either under or over perform in relationship to these expectations, an objective observer should realize and understand that there is a significant difference between expectations and facts. In addition, in many cases, there is far too much attention paid to gross revenues, when a company's bottom line is more dependent on profitability, which is the difference between revenues and expenses.
1. When company's prioritize revenues, they often do so at the expense of their bottom line. They do so because if these revenues come about because of ever - increasing costs such as materials, marketing and labor, the organization often does not benefit. The reality is often that, especially in more trying economic times, being overly sales oriented without paying sufficient attention to costs, diminishes and adversely impacts the bottom line. Consider a dentist who grosses a million dollars, versus one who may gross $700,000, but the first one has a 70% overhead, and the latter a 50% overhead. Who nets more, and takes far less risk? Consider a real estate professional, who doesn't control carefully, what he spends on marketing, advertising, etc. What impact will that have on his net income?
2. Often, it may be easier to address controlling costs than increasing revenues. This can be achieved by a combination of factors, including spending more efficiently, being more effective, wasting far less time, and creating a strategy that objectively looks at the relationship between costs and revenues. No one can accurately see into the future, and thus, addressing expenses is often far more reliable than forecasting increased receipts. However, management must take care not to overreact and take draconian measures when more moderate, fiscally responsible approaches are called for.
3. The key to a business' success is their bottom line, not simply in the short term but into the foreseeable future. This means addressing all expenses and examining if one gains the most bang for the buck. Management must be careful that they do not cut the wrong expenses, but merely reduce the bloat, inefficiencies, and seek better and more efficient alternatives. Smart executives generally begin by utilizing a carefully prepared, organized and realistic zero - based budget, that is used as a true planning tool. Sometimes, draconian cuts will address the short term fiscal picture, but if done without planning and foresight, will often adversely impact the long term picture and performance.
Success is not based merely on how much revenue might be brought in, but rather the amount, degree and consistency of the profits. Smart business managers and leaders are far more concerned about profits and sustainability than they are solely about revenues alone
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