The Only Number That Matters in Business

You're getting flustered with the hundreds of financial ratios/terms/yaddas, preventing you from understanding the full measure of your company. <h2>What do you do? </h2> Think: Football game. Quarterback rating, # of turnovers, the # of penalties, # of Pro-Bowl players on each team. What matters most? # of Points. Nothing else is a 100000000000000th as important. <h2>How Do You Track # Points in Business?</h2> Profits. <ul> <li>Not sales.</li> <li>Not # of employees.</li> <li>Not # of products.</li> <li>Not # PHDs on your staff. </li> </ul> Profits. Profits. Profits. Companies mistakenly focus too much on making X revenue, according to Google's CEO, that they're forgetting what matters most at the end of the day. <h3>The only number that ultimately matters to Google's management team?</h3> Profits. You can achieve ridiculous revenue, but if you're leveraging your business with freakish debt that puts your company into the red every-frickin-quarter (see the bank catastrophe, and Detroit): <ul> <li>Your company = The suck.</li> </ul> <h3>Don't let the freakish number of terms on complex financial statements and a kajillion finanical ratios confuse the mothereff out of you:</h3> <ul> <li>Focus on the bottom-line figure. See how it's trending. </li> <li>Use everything else (e.g., cash flows, turnover ratios, the yaddas) as the reasons why your company achieved that bottom-line figure.</li> </ul> <h2>What Profits Tell You</h2> In a free market world, profits tell you: <ul> <li>how much output you're getting from every input </li> <li>how much value you're giving the world</li> </ul> If you're in the red every quarter, your business is causing a freakish drain on society as others pick up your slack to help you survive. It's like 38-year-old Billy B. still living at home while his mama provides for his couch-sitting @#!$@ Cheetoh-eating behind. BOO. <h2>"BUT PROFITS ARE EVIL! OH NOES!"</h2> First, the moral issue: Companies that are profitable: <ul> <li>pay taxes (which funds 987956875609875 things) </li> <li>fund philanthropies</li> <li>provide many more jobs (for employees who pay many more taxes) </li> </ul> Point: Profits = crucial for a free society. Now, peep this from a business and social perspective: <ul> <li>The free market lets Consumer X choose where to spend her hard-earned dollars.</li> <li>If Company Z is a freakish bizattchi to Customer X, Customer X will choose a competitor.</li> <li>Company Z then better get its act together, or it'll run out of customers. </li> </ul> For the financial freaktards: <ul> <li>Like water, companies need profits to survive.</li> <li>If Company Z can't sufficiently provide for Customer X's needs, Company Z = no profits. </li> <li>Without profits, financially smarter competitors will destroy Company Z -- draining its number of jobs/contractors/vendors/projects/RFPs/the-yaddas.</li> </ul> (The same model applies for a company's employees.) Moral: <ul> <li>Serve customers and employees to the fullest #@!$@!, or die.</li> </ul> Focusing on short-term gain will destroy your company's long-term future (see: Enron, Lehman, Bear Stearns, Krispy Kreme, et. al.). <h2>Two Steps to Measure Your Business</h2> This: <ol> <li>Track your net profits every quarter.</li> <li>Improve on your net profits every quarter.</li> </ol> Ta-#$@!-da. <h3>What do you see?</h3> <ul> <li>Upward net profit trend? You're building a sustainably superdupergood company. (Warren Buffett congratulates you.) </li> <li>Fluctuating trend? You're building a company that is the market's beyotch (i.e., unsustainable).</li> <li>Downward trend? FIX.</li> </ul> Focus. <h2>Profits. (Upward.)</h2> 2008-12-22T02:29:25-08:00 true 713 the-only-number-that-matters-in-business

2009-11-06T21:45:48-08:00