This quote applies to businesses too and how they are run on a daily basis. I am adding this as a separate post as a daily reminder not to complicate things…

Simplicity is the ultimate sophistication.

Leonardo da Vinci

For individuals who have debt and cannot control their budgets and money management, I like a quote that Dave Ramsey uses all the time…

The borrower is slave to the lender. Proverbs 22:7 

This means until a debt (loans, credit cards, and so forth) are paid that the individual is responsible first and foremost to the lender and that will be who he serves until the debt is paid off. That is not a good way to live your life even though millions of people live this way for a majority of their adult lives.

For larger companies who have shareholders… there needs to be a new version of this quote. Here is one option to consider:

The company is slave to the shareholders. Ron Gallagher

Normally, a company has the primary responsibility to serve its customers… but I am seeing more and more often that when companies are slave to their shareholders this becomes the primary consideration for all (or at least most) business decisions. The result of serving exclusively the shareholders is that the company will make poor and very short-sighted decisions. Consider this scenario, if a company said to its shareholders that moving forward with option A would result in a doubling of the stock price in one year… but the company may not last more than a 2 years until it is shut down… my guess is 90% + of all shareholders would vote for option A. Versus option B that would include a decent dividend plus result in a doubling of the stock over the next 10 years (which would mean the company would be around for at least that long).

I know this is a simple scenario… but companies do (and have) made decisions like this based solely on serving the shareholders!

No consideration for their products future or customers at all… decisions based only on a short-term shareholder benefit.

This lesson applies not only to large companies with shareholders… it can apply to any size company who is in debt (or owes someone money). No matter the company size you must consider who you serve. Is it the customer or the lender or something/someone else?

~Ron

Is your business Profitable?

I was speaking with a small business owner the other day about his desire to grow his business as he figured it was time to expand. I knew he was struggling with how to make this expansion happen as every time I asked how he would pay for the additional expenses he became quite irritated. Then he made the statement that “at least my business is profitable so I know I can make this happen”. That was when I knew he needed a reality check… as I already knew that he had not paid himself a paycheck from the business in over 2 years!

To make agriculture sustainable, the grower has got to be able to make a profit. Sam Farr

Later, I wondered how someone could define their business as “profitable” when they were unable to pay themselves a regular paycheck?

So, I started to create a definition of “profitable” that made sense to me as a business owner in hopes I could help with this person’s decision.

The Merrian-Webster dictionary defines “profitable” as it relates to business as “(of a business or activity) yielding profit or financial gain“. Also, there are references other than money such as “producing good or helpful results or effects” and similar things… but I wanted a definition of profitable related to operating a business and spending your life’s hours working at that business. Is it reasonable to think about it as simple as “yielding profit or financial gain” if you (yourself) are not getting paid?

For me, I think when I discuss the concept of being “profitable” it has to include the following.

A positive money balance when:

All standard overhead items are paid on-time including – rent or mortgage payments, all utility payments, and heating/cooling costs.

All debt payments (including credit cards) are paid on-time and resulting in a reduction in debt totals each month.

All inventory of product sold can be replaced without incurring additional debt (again this includes credit cards).

Finally, at a minimum, each employee is paid a paycheck at a reasonable and customary level (this includes the owner of the business).

If all these criteria are met… then, the business can be qualified as “profitable”

~Ron

I remember over 20 years ago while working for a company in Indianapolis, during one of their annual company-wide meetings the CEO stood up and stated that the company was going to grow (in revenue) by at least 10% per year… every year and that this would happen “no matter what it took”. I remember sitting in that meeting doing the math that this kind of annual growth would be, compounding the 10% increase every year, and laughing to myself how stupid or ignorant this person really was. I left that meeting and immediately started looking for my next work path as I knew this company was doomed. I was right too, not more than 4 years later that company was gone… sold for the parts left that were still treading water.

That was when I decided to start my next company as I just felt that a company didn’t need to be run that way… it could be better and last longer and be more enjoyable for everyone involved.

My name is Ron Gallagher. I hold a Master Degree (MBA) in Management and Strategy and a Bachelor Degree in Business/IT Management. I have experience (over 20 years) in professional IT/website/application development, business development and operations, management quality review and control, and entrepreneurial activities.

This website/blog is about documenting the good, the bad, and the ugly when it comes to managing a business… especially managing a business when things are not going as well as you want. I have always said that “anyone can run a business when times are good and money is positively flowing regardless of what you do each day” but it takes a special kind of person to successfully manage a business when times are NOT that good, when the money flow is slowing down, and when the business trend is down!

I have always loved making things more efficient, doing more with less overhead, right-sizing things (not just downsizing), keeping the cash flow positive, and focusing on positive growth and success (not just money success either).

Please join me on this journey… my plan is to document things I have seen, experienced, and learned over the years (as articles and posts) and that I will continue to grow as a person… and that others can also learn too as a result.