It was a special Monday at Don Pedro González's company, the day the firm's accountant would make a presentation of the summary of what happened during the year before the owner of the company and his closest group of collaborators.
It was a year in which the activity of “González e Hijos” had shown a significant level of recovery compared to the previous ones. The volume of sales had not only been maintained, but even grew by 30%, which led to the need to hire new operators and employees to carry out the Company's management.
Everything suggested that it would be a quiet meeting, in which there would be more than justified reasons to celebrate and toast the growth of the business, as it could be "read" on everyone's distended faces. For this reason, no one was surprised that one by one they entered the meeting room amid jokes and laughter so that, in this context, the exhibition could begin.
Throughout it, the faces were changing, nervousness was present as the silence became more tense and the environment began to become uncomfortable for everyone.
The situation table presented by the accountant was very clear and left no room for doubt. The company was not in good economic-financial condition, what is more, the level of uncertainty regarding the future was more than justified.
Everyone had a hard time understanding what they were hearing and the comment was almost unanimous - "how can it be?" -.
How to explain that, in a period marked by a one-third growth in the billing level accompanied by a significant increase in the customer portfolio, in which the company was working at almost 80/90% of its installed capacity and during which it had been necessary to enable 3 shifts to supply the production needs, had the result been bad?
This situation that I have just described in a very brief way, unfortunately is not so difficult to find in small and medium-sized companies today. The question that arises almost naturally is "How can it be that if we are working more and more, we do not see the result of our effort in terms of a less tense cash flow or a margin that we can dedicate to reinvest in the business?"
Obviously, in these circumstances there is much to discuss with the employer. Not only must we show him that there may be operational problems (which will surely be the easiest to identify) but fundamentally we must help him to be aware that these situations are usually a manifestation of a way or style of running the business that is already It does not respond to the strategic and competitive needs that the market is demanding of it.
Many times the small and medium businessman tends to confuse concepts and expressions that may seem similar but are not, such as:
o Growth is not the same as development to assess the degree of evolution of a company. We can say, succinctly, that growth is a concept that is more related to the mere increase in the size of a body or of an organization (higher turnover, more employees, more capital goods, more square meters and up to a greater productive capacity) while development is intimately linked to the incorporation of capacities to generate greater value for the company (higher level of knowledge, development of skills, an organizational culture aligned with business needs, etc.).
o An effective company is not the same as an efficient one. It is not the same to do things (efficiency) as to do well those things that really have to be done and the way they have to be done.
o A large company is not the same as a large company. A large company is simply one that has grown, while a large company is one that has developed the capabilities to provide a different level of service or product, beyond its size.
There is a moment in the life of small and medium-sized companies (if we do not want to repeat the experience of “González e Hijos”) in which it is necessary to be aware that the model based on mere growth or driving based solely on monitoring of the numerical variables (turnover, production level, number of personnel, for example) must stop being the parameters with which we must evaluate our management and for this the first thing that must change is our vision of the function of management or company management because absolutely no customer will be willing to pay an extra penny for our products if that penny is intended to "finance" our inefficiencies rather than provide them with a higher level of satisfaction.
Our macroeconomic context hits us daily and permanently forces us to rethink how we are working (or at least how we should be doing it). The lack of liquidity with which small and medium-sized companies usually coexist, the decrease in demand for our products, the excessive and fierce competition in our markets, the impossibility of having a level of working capital according to the need of our business, the fall in portfolio turnover rates, the interest rates that we must pay in order to finance our activity, the tax pressure, are some of the responses that the small and medium businessman commonly uses when having to explain why what does not achieve the results that the company needs to continue its development.
In those same reasons is the root of the problem, if you reread them you will see that in all cases the company "places itself" at the expense of what the others decide, be they clients, competitors, banks, the government, etc. The fact of considering ourselves permanent "victims" means that the responsibility is always out of our reach and that therefore the only thing we can do is try to subsist by redoubling efforts to do more of the same (that is, what we always did) in the best possible way until everything, supposedly, changes (which in our company mentality means that everything returns to how it once was). Obviously, doing more of the same in a radically different context is never going to make sure that we will get the results that we have ever achieved, but nevertheless,We lower our heads and lash out harder and harder.
And of course, it is not a matter of strength or amount of effort, but of understanding that the context will not change for us if we do not previously change ourselves. Albert Einstein told us:
"We cannot pretend to change the world with the same tools that we have used to generate it in its present form."
There are several foundations to explain what has happened to our friends of “González e Hijos” (and to many small and medium businessmen), some of which we will state below.
* The day to day is lived. There is no planning or budget of any kind with which, it is impossible to foresee any difficulty and when it occurs, it must be solved at any cost, with the irreparable impact on the health of the company. The entrepreneur is located in the middle of the operational wheel which removes any possibility of having a perspective on the progress of the company different from that of any of its collaborators. The medium and long-term strategic vision and the analysis that could be carried out from an external position to the vertigo of day-to-day life is totally seen as impossible.
* The economic is confused with the financial and before cash problems (which become common currency) the vision of the flow of funds is usually privileged over profitability (but not consciously). Within the entrepreneur's way of thinking, it would seem that there is no clear recognition of the economic consequences of certain decisions until they appear "magically" in the results table. It is seldom fully aware of the impact, for example, of cost of additional freight as a result of poor production planning or logistics that only dispatches products without evaluating the best options and conditions.
* The urgent is privileged over the important. There is never enough time to carry out the analyzes and reconsiderations that the company requires because the entrepreneur is always too busy. In this way, problems and errors are repeated over and over again with the extra costs and expenses that this implies and, to complete the table, they are not analyzed for their reason for being.
* Volunteerism is always used as a means of solving any problem. It would seem that any difficulty can be solved only with more working hours, with more busy people, with longer working hours, etc. But this is not the case, it is not always possible to compete with increases in the number of employees when our competitors are investing in new technologies. It is not possible to simply think that customers and / or suppliers will "accompany" the company in any circumstance and that they will know how to justify our deficiencies based on the number of years of business relationship. It is unthinkable that the bank manager gives us the line of credit that we need because the company is made up of "good working people."
* Means are often confused with ends, for example, the level of turnover is one of the means, and only one, to achieve profitability. But as we have mentioned, many times to increase turnover (the means) we resign profitability (the end) via discounts, promotions, etc. We either give too generous collection terms or we directly sell to clients of dubious reputation.
* The hidden costs of maintaining a certain level of activity without the corresponding level of management quality are not considered. From the perspective of the SME entrepreneur it would seem that the only consequences of raising the level of activity would be to raise the level of income. The negative consequences of this decision are practically never analyzed and weighted in terms of the increase in costs and the effort to which the company's assets are subjected. Maintaining an excessive level of activity for an extended period can seriously jeopardize our production capacity in the future if the machinery, for example, is not prepared for it.
* There is no realistic vision of the market served and the possibilities of the company to serve it competitively, with which, many times, with the "healthy intention" of selling to all customers, we are not aware that we do not have the necessary resources (working capital) and therefore, it is usual for all customers to feel dissatisfied and with a very high level of dissatisfaction. As a consequence, customer loyalty decreases and the cost of having to replace lost customers increases.
* There is no necessary flow of funds. It is not surprising that we find a high level of immobilization of assets especially in sales debtors (consequence of an increase in sales without the corresponding efficiency of collections) or in inventories (because the sales and production forecasts are not always correct). integrated). As a consequence of said asset immobilization, balances begin to accumulate in the accounts payable item (whether commercial and / or fiscal) but what is worse, the image of the company begins to deteriorate and therefore, the risk of work with her. Banks begin to "punish" it with conditions (interest rates) higher than the usual ones in the market as a result of the situation.Suppliers choose to quote us at prices that also include the uncertainty factor regarding the possibility of recovering their capital (when they continue to sell to us). It also happens that some of them choose not to work with the company anymore and therefore have to source from others who either charge us much higher values than usual in the market or force us to pay them immediately. Both cases imply having a liquidity that the company does not usually have, and that it needs to be able to operate, therefore, it is usual to try to resort to bank or extra-bank financing with the over-cost that this implies and which is not always We reflect on the profitability margin, until reality hits us at the end of the month.
* It is common for small and medium-sized companies to present a notorious imbalance between the accounts receivable (their quality, terms and solvency of the debtors) and the accounts payable. It is not strange for an SME to permanently feel that the payment date is always a true and known commitment while the date of a collection is simply a possibility. It is too common for the company to take very important risks with respect to its activities to maintain the level of activity in order to generate the resources to be able to continue “turning” even in the conditions mentioned in the previous point. And I think that all of us who know the SME problem know that if the businessman has as a fundamental concern and occupation of every day having to cover the bank, during that time,You cannot dedicate yourself to running the business or developing new opportunities for your business to evolve.
Of course, these are only some of the events that affect the lives of small and medium-sized companies, but unfortunately, in most cases they are situations that are not known, are avoided. Worse still, not only has the businessman become so accustomed to them that he no longer sees them (even when he has them in front of him) but he also does not relate them to the direct impact they have on profitability, causing him as unpleasant surprises as the one raised in the beginning from the article.
Therefore, the company that until now was spinning frantically like a newly launched spinning top, begins to lose the initial momentum and risks falling at any moment. The only defense that the businessman tries is to increase the rate of turn of the business but that does not attack the root of the problem, which remains unchanged. Just as we usually say that the SME leader spends a large part of his day putting out fires, in this case we can say that increasing the company's rate of turn has the same effect as a great wind on a fire, it will revive it much more. Still and paradoxically the more you work, the worse it will be.
Unfortunately, for the businessman, this table is not solved with money (access to credit) and I say, unfortunately, because the problem is much deeper. It is necessary to rethink everything and how much the company does and question it from the perspective of the value generated for our clients.
The situation can begin to take hold when you become aware of what is really happening, when you make the decision to "attack" the inflamed organ and not only content yourself with trying to lower the fever, which is merely a reflection of the true evil.
The businessman must recognize this situation and accept that he must change his style. How much? EVERYTHING that is necessary for the company to become competitive and that implies not only redefining its role within management but also incorporating new ways of seeing things, because as Paul Allaire put it:
"To do things differently… you have to see them differently."
Only in this way, we will stop asking ourselves “why if we work more…. We are getting worse every time. ”
