Culture, Profitability, Productivity

S

Culture, Profitability &

Productivity

In Harmony

BIZ

Business Growth Planning

BASICS

S No Culture without Profitability

S No Profitability without Culture

S No Profitability without Productivity

BIZ

Business Growth Planning - www.bizleap.com.au

CULTURE

Employee Evaluations That Will Drive Culture and Profitability

S Key #1: How Good a Teammate Is the Employee?

S Who is the front desk person?

S Just about every business has someone like that.

S If she is cold toward either external customers or her

fellow teammates, it doesn’t matter how good her

skill sets are.

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CULTURE

S Key #2: How Well Does the Employee Connect with External Customers?

S There are a lot of people who are technically sound but don’t do well with people.

S Can you hide these people? At some point they’ll likely have contact with a customer.

S Do you want those people to represent your business?

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CULTURE

S Key #3: How Productive Is the Employee?

S Two types of workers

S Tortoises – Vital to the business - stay at their desks. They stay focused and

they work, work, work. They may not necessarily be fast, but they stay at it.

S Hares – Rock stars - can get burned out, so be careful in terms of evaluating

productivity over short periods of time versus longer periods of time.

S Watch for employees who

have to expend a large number

of hours to be productive.

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CULTURE

S Key #4: Does the Employee

Contribute at Your Targeted

Profitability Levels?

S Clearly you have to make a profit

from every employee or else you

have a broken business model;

what gross profit does every salary

dollar return?

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CULTURE

S Key #5: Core Competencies: Have

the Employee’s Responsibilities and

Skills Increased?

S Salary changes for only one of two

reasons:

S if the salary economy changed and we

adjusted the pay scale or

S if they moved up a level.

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PROFITABILITY

S Help Team members understand what it takes to make the

company profitable

S Help Team members understand what it takes to make their

jobs secure; (one day you don’t want to tell them the

business can’t afford to pay them.) Jack Stack

S Help Team members understand

what it takes to help them carve out

their future with your company.

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Leverage of Sales & Profits

Assets Sales Profits Cash

Ideally: Stable ↑ 10% ↑ 20% ↑ 30%

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Leverage of Sales & Profits


Ideally: Stable ↑ 10% ↑ 20% ↑ 30%

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Efficiency

S Your efficiency score asks: How efficient are you at converting Sales into Profits? Here’s the formula we use to measure efficiency:

Profits ÷ Sales = Efficiency %

Example: $ 200,000/ $1,000,000 = .20c

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Leverage of Profits & Cash


Ideally Stable ↑ 10% ↑ 20% ↑ 30%

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Leverage of Profits & Cash


Ideally Stable ↑ 10% ↑ 20% ↑ 30%

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PRODUCTIVITY

How good are you at converting Profits into Cash? Here’s the formula we use to measure productivity:

S Operating Cash Flow ÷ Profits = Productivity %

S Example: $150,000 Cash/ $140,000 = 107% or 1.07

S Example: $20,000 Cash/ $140,000 = 14.3% or .143

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PROFITABILITY

Calculating Net Profit

Step 1: What’s the Revenue?

Step 2: Do you have a Market Based Salary?

Step 3: What are Costs of Sales?

Step 4: Have you included all Expenses, including depreciation and interest?

Step 5: Is your pre-tax Net Profit 10% minimum?

Step 6: If pre-tax Net Profit at 15% you can expand/employ more resources.

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PROFITABILITY

How to determine it?

Revenue

Salary Cap

Cost of Sales

Fixed Expenses

Net Profit

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PROFITABILITY

Team Bonuses & Targets

S What is your Critical Number, Cash flow, Profitability,

Productivity, Revenue/Sales, Stock, Expenses, Payroll,

Debtors?

S Tie bonuses and targets to the critical number of the

Company

S Make bonuses cumulative so Team doesn't lose motivation

The Bonus or targets are around the critical numbers of the Company

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Leverage of Assets, Employees,

Payroll, Revenue

S Profits/Assets - Ratio % or in plain English what does $1 in Assets generate in Profit?

S Profits/Employee- Ratio% or what does each employee generate in Profits in dollars?

S Profits/Payroll- Ratio% or what does $1 in Payroll produce in Profits?

S Profits/Revenue- Ratio% or what does $1 in Revenue generate in Profits?

S Example:

S $150,000 Profits and $1M Revenue- $1 Revenue = .15 Profits

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Effectiveness

S Your effectiveness score asks: How effective are you at converting assets into sales? Here’s the formula we use to measure effectiveness:

Sales ÷ Assets = Effectiveness

Example:

$1,000,000 /$500,000 =2

$1,000,000/250,000= 4

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Productivity Report

BIZ

Exhibit 8.2: Labor ProductivityLabor Efficiency

Period GP% Billings GP$ Labor Week MTD YTD

January 49.50% $ 145,000.00 $ 71,775.00 $ 35,000.00 $ 2.05 $ 2.05

February 51.20% $ 154,000.00 $ 78,848.00 $ 37,000.00 $ 2.13 $ 2.09

March 47.60% $ 180,000.00 $ 85,680.00 $ 40,000.00 $ 2.14 $ 2.11

April 50.10% $ 190,000.00 $ 95,190.00 $ 42,000.00 $ 2.27 $ 2.15

May

Week 1 50.00% $ 40,000.00 $ 20,000.00 10,000.00 $ 2.00 $ 2.00 $ 2.14

Week 2 50.00% $ 38,000.00 $ 19,000.00 9,500.00 $ 2.00 $ 2.00 $ 2.14

Week 3 50.00% $ 35,000.00 $ 17,500.00 11,000.00 $ 1.59 $ 1.85 $ 2.10

Week 4 50.00% $ 1.85 $ 2.10

Week 5 50.00% $ 1.85 $ 2.10

May Total $113,000.00 $ 56,500.00 $ 30,500.00 $ 1.85 $ 2.10


How to determine

Salary Cap

Revenue $1,000,000

Salary Cap $100,000

Cost of Sales $500,000

Fixed Expenses $300,000

Net Profit $100,000

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How to determine

Salary Cap

Revenue $1,000,000

Salary Cap $200,000

Cost of Sales $370,000

Fixed Expenses $330,000

Net Profit $100,000

Minimum

pre-tax

net

profit

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Productivity

Absorption Rate

S We like to see how many hours per week each team member

is working on prime time, including Admin Team.

S Then we can work out the

absorption rate ( the $ amount

per hour the company has to

pay each team member so overhead

expenses are covered).

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Productivity

Utilisation and Capacity

S Utilisation / Capacity = Efficiency For example, if an

accountant has a forty-hour week, but only produces

chargeable client work for twenty hours then the efficiency

rate = 0.50 or 50%.

In the example of the accountant, the twenty hours that are

being ‘wasted’ could have been spent doing other things.

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BIZ

Akio Yamada

Mirai Industries


S Acknowledgments to Jack Stack, Keith Cunningham, and

Greg Crabtree.

BIZ


Documents

Culture, Profitability, Productivity