Perspectives

The triumph of small and medium-size business

As you look back and define success in the deepest recesses of the mind, on both a personal and business level, the realization should be that success is making sure that you are happy with the progress made in life and enjoying the pursuits that are deemed important.

As simple as that may seem, it is extraordinarily difficult to define what “success” is for a small to medium-size business owner. At first blush, it would appear that the maximization of profitability is self-serving and should not be the primary or prerequisite goal in order to deem a successful business person. However, on a much broader perspective, you should quickly come to the realization that it is not too self- serving to demand perfection as it relates to the production of profitability. The reason is that each business owner has the responsibility to all of the people and entities which come into contact with them.

The groups that are dependent upon the business owner not only consist of clients and employees, but also the families of those clients and employees including the vendors and their families. This also involves all of the professionals, such as the bankers, who come into contact with and rely upon them too. Add up the total number of people who are dependent upon an individual entrepreneur if they were to have 25 employees. The numbers would total in the many hundreds who are dependent upon the success, or lack thereof, of the business endeavor.

Take into context this enormous responsibility that each entrepreneur has accepted by agreeing to become the leader of a business endeavor. Only then can one come to the realization that maximization of profitability must be the most important component in business success.

In order to be truly successful, define what happens after profitability is maximized. There are many ways to take advantage of this maximization of profitability in order to achieve a certain level of success. First, turn business success into liquidity. The reason it must be done is because every owner must aspire and strive to run the business based on profitability, not cash flow. In order to achieve this goal, it is necessary to produce a positive cash flow long enough to have significant and sufficient liquid assets in order to maintain all of its responsibilities as they are due. This allows the company and the entrepreneur to make decisions based on profitability, not cash flow.

A classic example is an entrepreneur deciding what inventory to carry based on the capability of what can be sold taking profit margins into account. It would surely appear that this business owner should carry inventory that maintains the highest margins. However, if that inventory is slow moving, it would be necessary to use such a high percentage of working capital to finance the acquisition of this slower moving inventory. Instead, the owner comes to the realization that the inventory mix should be more slanted to the lower margin items that maintain a much quicker cash cycle within the confines of the cash management system. This, of course, is ludicrous.

The entrepreneur needs to maximize profitability and turn it into liquidity so that decision becomes extremely simple. It is necessary to maximize inventory, or the items which carry the higher margins, in order to increase bottom line profitability.

The next level of success is to make an assessment as to whether to reinvest assets back into building a foundation that will allow the business to become a monument. Certainly, some of these dollars should be reinvested back into the business in order for the business to become more solvent, productive and cost efficient.

An additional responsibility the entrepreneur has, beyond building a monument, is the determination to best serve society as a whole. Many come to the realization that they have been blessed by the success of life—success being defined as maximum profitability and liquidity. In turn, they have an obligation to help as many charitable entities as possible. This certainly is a noble goal and one that everyone should aspire to. Every business owner that is blessed with the capability of being deemed successful certainly has an obligation to help those in need better cope with the daily trials and tribulations of life.

Really examine how to determine success and the capability of changing people’s lives. By doing so, an entrepreneur can rightly feel they have reached a level of success beyond the average person.

Every entrepreneur should come to the realization that building a business requires direct management for the first few years to increase cash flow. In order to make a transition from a cash flow producing company to a profit producing company, there are extremely hard choices to make regarding how to minimize costs and maximize the potential gain of the company.

In many instances, entrepreneurs make the decision to slash costs. However, this cost slashing prevents the company from producing its goods and services at a reasonable price or reasonable rate. This, of course, is counter-productive in making the transition from being a cash flow producing company to a profit producing company.

Others make the mistake of driving the revenue higher, therefore reducing fixed expenses as a percentage of the total revenue leading to a course of increased bottom line profitability. The fallacy in this argument is that it is true that driving the total revenue higher and maintaining strict control over fixed expenses will drive the margins higher. That only becomes a reality if the same strict controls are maintained on productivity for the higher revenue which is now enjoyed and maintained on the lower revenue. This is not just productivity as it relates to workers, but also as it relates to the acquisition of products, materials, and other components such as advertising, public relations and human relations.

Success for a mother is nurturing her children to a point of being self sufficient. Success for a father is nurturing his children to the point of being ready for life. Success as a person is being capable of looking in the mirror and being satisfied with what you see.

Success for an entrepreneur in North America is also based on the total liquidity built within the business in order to reach the point of changing their lives. You should truly have a vision to improve society and other people’s lives by devoting some business assets for common and public good. Only then can a person say, “I have accomplished so much.”

We have accomplished little if the only thing we can say is that we have become affluent. We can only say that we are successful if we have shared the wealth for the common good with other human beings, taking into consideration our own constraints about human frailty.