In these very tenuous and difficult economic times, the importance of profitability becomes tantamount. Without profit, positive cash flow, which is the lifeblood of any business, can quickly dry up and cause significant difficulty even in basic operations. This is especially true when the availability of credit seems to be evaporating before our eyes.
Profitability is critical in the short term and in the long run. When times are challenging, as they are today, we must do everything we can to try to remain profitable as a business. Some of the things we must do to stay profitable are not very pleasant. However, if we are taking a long-term view of business even during the challenging days, weeks and months ahead, we must not forget that at the top of the list of what makes our businesses profitable are our people.
This statement may sound strange coming from a long time CFO. I work in a world that consistently measures itself by the operating profit, net income, or EBITDA line on the profit and loss statement. This is interesting because in my observation, companies that spend less time focusing specifically and exclusively on profit are the very same ones that have the highest return on the profit line. Should that be considered blaspheme? No, not really; the difference in the organizations that seek first to maximize the bottom line at all costs, human and other, are the very same ones that ultimately fail in many cases.
Long term, sustainable, healthy growth in a company, both on the top and bottom lines, cannot be built by focusing exclusively on a bottom line profit target. A healthy bottom line is the result of a well-run company. I have found that companies with good leadership believe that profit is the outcome of a good vision and a sound strategy that is well translated into understandable, executable plans for employees. When properly communicated by leadership, the strategy creates a clear direction for management and the staff to follow. With sufficient and well-guided resource allocation, training, and a singular focus on adding value to customers above all else, the company becomes profitable. This is truly the secret sauce of a healthy bottom line. Potential employees are knocking down the doors of companies like these to join them; these very same companies are extraordinarily profitable. In short, these successful companies are putting people ahead of profit.
Please do not misunderstand the intent of this article. These first class organizations also have excellent CFOs who ensure the company is measuring and managing key performance metrics, sales growth, profitability, cash flow, loan covenants and many other financial indicators. Without this diligent financial approach, for-profit entities cannot remain healthy. However, without productive people in the organization who feel they are part of a winning team, for-profit companies cannot remain healthy either.
The point is that we can run companies that are wildly profitable AND have happy, productive people in the company. The mix of these two creates a truly powerful combination. Balance is the key. A beneficial balance between the drive to meet financial results and a top notch, people-oriented environment is truly a recipe for phenomenal success in business.