Let Me Bottom Line It for You
By: Tammy Hader
Tags: Work, Management, Business, Startup, Finance

Profitability isn’t just about sales volume. Diversification of revenue streams, controlling expenses and maximizing resources also have a direct impact on the bottom line.

A myopic view of company resources could be costing your company money.

As an accountant, I’ve worked with many companies over the years. During my stint as the controller of a pharmaceutical research corporation, I witnessed the phenomenon of short-sighted management first hand.

DIVERSIFY THE REVENUE STREAM

Management’s main focus was on the big fish. The multi million-dollar in-patient study that required 24-hour staffing. The allure of such studies was the promise of big money.

The down side was risk. The right type or volume of adverse reactions could pull the plug on the study at any time leaving the company with significantly less revenue than expected.

Seeking out smaller, less glamorous out-patient studies was given minimal attention. Smaller projects, referred to as bread and butter studies, are an important aspect of a well diversified revenue portfolio.

Bread and butter studies keep the lights on. A single small study generated less revenue, albeit steady and predictable revenue.

Small studies were often long term and required less daily staffing than the large flashy studies. Bread and butter studies tended to yield a high profitability ratio per study but a small portion of total company revenue overall.

Small studies are most beneficial to the company if the revenue portfolio includes a high volume of activity. Like Walmart selling a huge volume of low-priced items.

Don’t put all your eggs in one basket. Classic advice that has timeless relevance.

CONTROL EXPENSES

The company didn’t have enough small studies to keep the high paid project leaders of the big studies busy. The study leaders performed many tasks not in alignment with their skill set in order to fill the day.

Costly personnel were used to staff the big studies in positions better suited to lesser skilled, lower paid employees. Allowing the most costly employees to work evening, weekend and holiday shifts meant inflated payroll costs and less profitability on all studies.

Making money isn’t only about what you bring in. It’s also about what you spend. Another reminder of classic and timeless advice.

MAXIMIZE ALL COMPANY RESOURCES

Management considered the revenue earners of the business to be not only the most valuable employees of the company, but rather the only valuable employees of the company. Administrative personnel were an underutilized resource seen as cost centers, if seen at all.

Many tasks performed by costly medical personnel could have been performed more effectively by administrative personnel not regarded by management as capable enough for inclusion on the team. Business degrees and administrative skills were not medical and therefore not held in high esteem.

A common problem really. Universities teach various areas of expertise but fail to educate these experts on the importance of administrative skills to running a successful business in real life. A topic worthy of a full article, some other time.

For now, the lesson is to appreciate the value of all employees. A different perspective can open doors overlooked by a narrow field of vision.

CONCLUSION OF MY CASE STUDY

The suggestion of diversifying the revenue streams by increasing the volume of smaller studies was ignored.

The suggestion of aligning employees’ skill sets and salaries to tasks was dismissed.

The suggestion of study leader positions as salaried instead of hourly was denied.

This company could have seen extraordinary profitability and growth. Instead, management’s tunnel vision looked only to revenue earners for answers to profitability problems and the company burnt out quickly.

A business is a multi-faceted entity. Look in all directions to find answers to unprofitable performance.

You may be surprised by how much unused potential you have hidden in the business minds sitting behind desks. Unsung heroes observing the forest while you are focusing too much attention on the trees.

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