In my opinion, increasing sales during a financial crisis is nonsense; because sales don’t happen automatically; they require strategic breakthroughs and funding, which companies in crisis don’t have.
Brutal cost-cutting is also nonsense, because it often leads to the wrong cuts, cutting muscle rather than fat, resulting in invalidity.
So, if this is wrong, what is right? Is that your question?
The answer is simple:
UNDERSTAND THE ESSENCE OF NUMBERS. Not just what is written or seen, but WHAT DOES IT REPRESENT? WHY IS THAT NUMBERS THERE? DOES THAT NUMBERS REALLY HAVE TO EXIST? WHAT IS THE CONCRETE EVIDENCE OF THEIR BENEFIT?
If you only focus on financial reports, or physical presence and activity, you will miss the fact that your company’s NUMBERS are burdened by the 4 PROFIT BANDITS: Inefficiency, Ineffectiveness, Waste, and Financial Fraud.
For example, if you consider 76% COGS to be normal, then as long as the report stays within that range, you won’t question it.
However, if you analyze it based on Meritocratic Financial Engineering, 76% is too high! Your 15% operational cost is too high! And the remaining 9% profit margin is too low!
By detecting and eliminating the four profit bandits, you can increase your EBITDA by 5-30% (depending on the scale and type of industry) without the need for brutal cost cutting or increasing sales.
Johanes Lim, PhD, CPC, CHt (林泰義)
Financial Doctor and Turnaround Specialist for Family Businesses and The BOD Forum Across ASEAN
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