Profits Aren't Everything, They're the Only Thing

No-Nonsense Rules from the Ultimate Contrarian and Small Business Guru

George Cloutier

• Publisher: Harper Business
• Year: 2009
• Print ISBN: 9780061856310
• eBook ISBN: 9780061959844
• Topic: Personal Development
• Subtopic: Business Communication

Small-business guru George Cloutier offers the controversial message that Profits Aren’t Everything, They’re the Only Thing in this book of wisdom for entrepreneurs everywhere in these tough economic times. With advice such as “forget teamwork” and “micromanage like crazy,” Profits Aren’t Everything, They’re the Only Thing is the reality check that will help small-business owners stay afloat and stay profitable.

PROFIT RULE 1

Profits Aren’t Everything, They’re the Only Thing!

ABOUT TWO YEARS AGO we were working with a masonry contractor in North Carolina who was out of cash. The owner was a decent, God-fearing, and hardworking fellow, but his back was against the wall and he couldn’t even pay his taxes or his payroll.

I put Lou Mosca, our senior vice president for client operations, on the case. Lou, a no-nonsense kind of guy, looked at the client’s list of receivables and saw hundreds of thousands of dollars in unpaid invoices owed to him. But one in particular was so large, it stood out. The contractor had done some work on the local church, the one he attends, and for months the pastor hadn’t paid him. The church owed the contractor $50,000.

When Lou asked him why he hadn’t collected, the guy replied, “It’s my church, what can I do?”

“I’ll show you what you can do. Get in the car,” Lou said.

The two of them drove to the church, and the contractor sat quietly in a pew while Lou politely but firmly confronted the pastor. He collected $50,000 on the spot, and the pastor apologized.

From then on, employees at that company looked at us with awe. We’d collected from a man of the cloth and didn’t get struck down by lightning. The cash flow generated by the paid receivables pumped new life into the business, which is thriving today. When the owner thanked us, Lou said:

“From God’s hands to your checkbook, Lord willing, you’ve got to get paid.”

The contractor had committed one of the biggest sins against business by failing to collect. But he found redemption, and profits, in the end.

Amen!

Shocked? Good! Because many of you need your own lightning bolt to jolt you awake. This book is about an attitude adjustment and the need for your total commitment to run over anyone or anything that gets in the way of your company’s paramount need for profits. That’s all you should care about. In fact, if you don’t want to be in the top quartile of your business and you choose to wallow in mediocrity and failure, you should probably stop reading now.

Still with me? Great! That means you’re ready to do anything and everything necessary to maximize your profits. Be ruthless in this quest. If you have to terminate family members, so be it. It’s time to stop whining about the diminishing demand from the marketplace, employees who are not performing, or banks that won’t extend your credit because you are losing money. It is in your power to maximize your profits, solve your problems, and have a good life. You have to decide whether you want to be a pillar of your community because you have a strong and well run company, or waste your time spinning yarns and fantasies to yourself about how well you’re doing. It’s in your hands now.

You can do it. The Profit Rules described in this book, honed over thirty years of direct experience, analysis, and implementation, will give you the razor edge you need to turn your business into a profit machine. Our experience with 6,000 small businesses, in over 300 industries, has allowed me to see firsthand what works and what you need to do, starting today. Our consultants have spent nearly one million hours on Main Street, from Bangor, Maine to Oakland, California. We have identified over $1 billion in additional profits for our clients. We’ve made real profits happen for every conceivable kind of business, from day spas, car dealers, and construction companies, to T-shirt and fire engine manufacturers and, even a lard producer (that was a slippery one). We’ve helped companies ranging in size from one-person proprietorships to 500-employee operations. We’ve worked shoulder to shoulder with owners suffering mediocre profits or on the brink of disaster. We’ve pulled thousands of businesses into profitable, sustainable enterprises that will endure.

I don’t care how bad it looks. Any business can achieve profits when its owners have the right focus and drive.

Get Paid!

Many of the solutions are probably staring you in the face right now. Finding them is a matter of reordering your priorities and facing the truth about your financials.

Be honest with yourself. There are plenty of simple steps to get cash that I know you are not taking. Small businesses always have way too many outstanding bills on their books; too many customers who have yet to pony up. It’s the most obvious way to get the cash flowing again, and it always amazes me how reluctant business owners are to ask their customers for the money owed to them. The story of that pious contractor is all too common. Why be shy about it? Collect, collect, collect!

I’M GOING TO GIVE IT TO YOU STRAIGHT: WHATEVER REASON YOU THINK YOU STARTED YOUR OWN BUSINESS, IT’S ALL ABOUT THE CASH.

Don’t measure success by how many employees you have, how much you contribute to your local church, how big a boat you own, or even what your sales are. When it comes to determining the true health of a business, those aren’t the measures that count. My company has 150 employees. So what? Show me how much money I have at the end of the month, and then I might get excited.

Profits Equal Cash

Paper profits for small business are meaningless and misleading. Small businesses can’t afford not to have a steady cash flow. You have to run things with real numbers. There is no room for anything else. In small business, cash flow is king. It has to be. Payroll has to be met. Otherwise you’ll have a group of angry employees ready to take you to court.

Do an estimated cash-based profit and loss statement each week. You should know where you are financially and adjust accordingly and aggressively. Cut, cut, and cut some more. Focus on cash flow and expenses right now. If money is tight or you foresee problems, be ruthless about slicing expenses, whether for payroll, rent, or travel expenses. If you have three useless employees, get rid of them. If the expense accounts are getting out of hand, set strict limits. There’s always extra fat to trim.

You have to have ironclad fiscal discipline. Particularly in a down market, but even when the economy is robust, small business owners need to be aware of their financial positions at all times. When they start failing, the ship goes down fast (more on this later).

Tolerate No Excuses; Trample All Obstacles

We had a metal fabrication contractor in Wyoming two years ago making $10 million a year in sales and $800,000 in profit. But the company, owned by a husband and wife team, was broken. One day the wife, who handled all the accounts, called Lou into her office and told him their coffers were empty.

“Why?” asked Lou. “How can that be?”

“Mr. Mosca, it’s a mess. I’ve got $3.5 million in receivables and the money just isn’t coming in,” she said. “Take a look for yourself.”

She stepped away from her desk and invited Lou to look at the spreadsheet on her computer screen. It was a dog’s breakfast. She had a gun to her head on a $4 million contract. She was dealing with change orders, money leaks, and late deliveries. She was broker than broke, and it didn’t look like she’d be collecting on her invoices anytime soon.

The healthy profits on paper (cash is the only profit) masked a host of problems. The business lacked the internal controls it needed. It had problems executing projects and meeting deadlines. Major clients challenged the quality of the work. The husband made bids on contracts he wasn’t qualified to handle. The wife blamed him for unrealistic estimates, poor purchasing procedures, and excessive overtime from workers.

We addressed all of these issues. We also found the business a saving of $75,000 on insurance costs. But the project ended. The husband wasn’t willing to follow through on our recommendations. He just kept pointing to the balance sheet.

“Well, I don’t know what your problem is. Look at these profits!” he said. “We must be doing something right!”

The rosy financial statement was allowing him to continue in his happy state of denial and make excuses all the way to bankruptcy court. (More in the next chapter on how deadly denial can be to your business.)

Accounting profit matters only if you manage it right and turn it into cash. Either way, you still have to pay taxes on it. When December 31 comes and you made $10 million in sales and $1 million in profit, you will still be paying 35 to 40 cents on the dollar, or $350,000 to $400,000 in taxes come April 15. If there’s no cash and it’s just a paper profit, you’ll have to borrow $400,000 to pay the IRS. In other words, you are screwed.

You should have been making a profit throughout the year, and a significant piece of that net gain should be sitting in your checking account at all times. If you are truly profitable, you should not have cash flow issues. I don’t care how bad the economy gets. If you are watching your bottom line and drying up all the money leaks, you should be able to sleep at night knowing there’s always going to be enough money in the bank to give you a nice, soft cushion. The culmination of the whole business cycle must be a tidy pile of cash you can use to pay yourself a reasonable wage and reinvest in the continued success and growth of your business.

In the game of business, pure profits are the only prize.

 

FLASH REPORT 1

Profits Are the Only Thing

Run your business by the numbers. Profits and cash are the only true measure of the health of your business.

 

Do a profit and loss statement weekly.

 

Focus on cash flow and expenses NOW. If money is tight, cut costs viciously. Then cut some more.

 

Collect on those receivables. Make sure profits on the books translate into cash in the bank.

PROFIT RULE 2

End Denial

IF IT WEREN’T FOR the four-foot wide conference table between them, Chris Mosca was convinced the retired four-star general was going to snap his neck.

Chris, our senior vice president in charge of corporate surveys, who also happens to be Lou’s brother, had been in Texas for six days. He was drilling down into the mess left of a body shop that contracted out staff for government information technology work. The general, a graduate of West Point, owed millions to friends and family. His bank was going to pull all his loans in sixty days. He collateralized his line of credit against his first wife’s home and wound up losing it. He couldn’t even afford to pay his child support.

This guy had the kind of military record that makes you proud to be an American. But he messed up. It was so bad, he was contemplating suicide, thinking he could pass it off as an accident so his family could use the insurance money to pay off his debts and not be left destitute. As he spilled all this to Chris, it was clear his life was a pendulum swinging between despair and desperation. But he still had some fight in him and he wasn’t quite ready to hand over control to us. He was in such deep denial he couldn’t believe that with all his military experience, hard work, and connections he had failed at running his business. At one point he pounded his fist on the table, shouting, “I will not fail! I will not go bankrupt!” He stared at Chris in defiance. Then he buried his face in his hands and wept. After a few minutes, when the crying jag was over, Chris stood up, put his hands flat on the table, stared the general straight in the eye, and said, “So are you a coward? What are you gonna do? Walk away?”

That’s when the general lost it. He was shaking with blind rage. Chris apologized for being so blunt. But after the general calmed down, and as the veins bulging on his neck subsided, a change came over him. He went quiet. We’d broken him down and made him see the truth. An iron will wasn’t going to fix this situation. He couldn’t fight...

Table of contents

• Cover
• Title Page
• Dedication
• Contents
• Introduction
• Profit Rule 1
• Profit Rule 2
• Profit Rule 3
• Profit Rule 4
• Profit Rule 5
• Profit Rule 6
• Profit Rule 7
• Profit Rule 8
• Profit Rule 9
• Profit Rule 10
• Profit Rule 11
• Profit Rule 12
• Profit Rule 13
• Profit Rule 14
• Profit Rule 15
• Acknowledgments
• About the Authors
• Credits
• Copyright
• About the Publisher