In my last post, I declared that we should say “No” to opportunities that will compromise our company’s vision, integrity, or profitability. This post inspired a big positive response from industry friends, but several asked how to best qualify when to say “Yes.” It’s a great question!
There are many qualitative reasons to say “Yes” to an opportunity, but sound business decisions are always supported by accurate pro formas and Profit & Loss statements. This holds true for everyone, including the creative thinker, the rainmaker (euphemism for the independent, fast-charging, commission-hungry, and client-pleasing sales person), and anyone inclined to impetuously sidestep standard cost accounting. I confess: I was guilty of this approach for the better part of my career.
Such behavior is rarely intentional; it is simply a reflection of the uninformed or undisciplined mind. In managing Finesse Cuisine and working with consulting clients, I have found that one solution is to create a compensation plan that in part rewards everyone for achieving specific financial goals. An even more effective approach, however, is to educate your staff to understand events in financial terms and concepts.
Periodic companywide evaluations of real event P&L’s will help you decide when to say “No” and when to say “Yes.” Even hourly employees should get into the act. You may be surprised by the great suggestions your porter, dishwasher, or driver offer on ways to economize. And they will feel great when they see how they add essential value to the company’s well being. When evaluating event pro formas and P&Ls becomes an everyday exercise, everyone is empowered to justify activities and pricing to clients, managers, and colleagues alike. The added benefit is that your Accounting Department will be better able to forecast cash flow.
Just as professional athletes, artists, and musicians still practice basic fundamentals, you will find it helpful to regularly run through the following topics with your management:
- What is a business?
- What is a Pro forma?
- What is a Profit & Loss Statement?
- How do Expenses impact Contribution Margin?
- What is the difference between Event Contribution Margin and Net Profit?
- How can a P&L shape decision making?
- What are your Company Fixed Costs?
Just like a basketball player practicing free throws or a jazz pianist running through scales, having these conversations reinforces the fundamentals of your company’s business.
It is the job of all managers to control and understand how costs affect them directly and why the P&L is essential. Armed with financial understanding, you can evaluate each opportunity's value and potential risks. Knowing all the right information helps you know when to discard the "Just Say No" rule and when to feel confident offering a wholehearted "Yes!"