In this 2-part series, we look at the challenges faced by owner-managed businesses that continue to eat into profit margins—from disconnected systems to convoluted financial reporting—and explain why a strategic business review can be the first crucial step to plugging profit leaks. Here are the first five.
Revenue growth can mask missed profits in owner-managed businesses
Owner-managed businesses are at the heart of the Australian economy. Across the country, there are countless examples of individuals going to great lengths to build a business from the ground up. They have impressive turnover, loyal clients, and good supplier deals to show for it, all fuelled by the determination of dedicated owners.
Despite this, however, there are almost always hidden friction points tends or underlying challenges that continue to eat into profit margins.
There are often 2 key reasons that these issues aren’t picked up forcing owner-managed business to continue operating at current profit levels:
- The business is doing well after all, so potential barriers to growth never come into the conversation.
- The owner-manager is simply too busy running the day to day and juggling multiple acts to press pause and focus on strategy changes.
Most owner-managed businesses are often one independent, objective assessment away from improving margins and unlocking healthier profits.
At CFO Australia, our team of experienced CFOs have delivered, and continue to deliver, transformational work for owner-managed businesses. Our strategic review work in particular reveals as many as 10 blind spots that frequently lead to missed profit margins—from disconnected systems to convoluted financial reporting. Let’s look at the first five.
Where are your profits leaking? 5 blind spots in owner-managed businesses a strategic review can uncover
1. The “it’s all up here” trap
In many owner-managed businesses, critical knowledge lives in the heads of the owner or key employees. How things are done, why decisions are made, and where the workarounds sit might never be documented.
That creates key-person dependency, repeated mistakes, and inefficiency — and makes the business harder to scale.
A strategic review highlights the hidden costs behind undocumented knowledge and manual processes and provide recommendations around establishing the systems, documentation, and automation needed to make the business less dependent on individuals.
2. Trying to please clients at all costs
Going above and beyond for customers can feel like good business — until the numbers tell a different story.
Extra labour, materials, rework or delays can quietly turn a profitable job into an unprofitable one. Without understanding the actual economics, businesses can end up with habits that erodes their margins.
After a strategic review, business owners often gain a granular view of the true cost and profitability of jobs, projects and customers, allowing them to be confident, and discerning, when making decisions around pricing, scope, resources and service levels.
3. Outdated systems creating inefficiencies
We find that disconnected systems (most commonly CRM databases and accounting software and other tracking and planning tools that don’t integrate seamlessly) often require manual workarounds, which can chew through employee capacity.
It also leads to human error which can make data and the resulting ‘insights’ less reliable.
If growth is a priority, identifying where technology and processes are holding the business back (and quantifying the cost of those inefficiencies) is crucial.
In their assessments, experienced CFOs will be able to recommend whether a systems overhaul will be able to deliver measurable returns in the form of lower costs, freed up capacity and better, more reliable data.
4. Pricing jobs and understanding profitability
Revenue growth can often mask the troubling, underlying issue of deteriorating margins. Margins are especially hard to gauge when financial data and project or workforce data all sit in separate systems.
Furthermore, labour overruns, lack of robust planning, endless rework in the name of client satisfaction, and poor discounting strategy—these can all cause the actual economics of a job to look very different from the original quote.
Strategic reviews often pave the way for a single source of truth which allows business to compare quotes against actual costs and identify exactly where margin is being lost—and make changes accordingly.
5. Managing time as a labour cost
Labour is one of the biggest costs for businesses, but owners don’t always have visibility over how their most expensive resource is actually being used. From the strategic review work we’ve undertaken for owner-managed business in particular, we found a few culprits that erode margins:
- duplicated role responsibilities
- unnecessary and lengthy meetings
- inefficient scheduling systems
- excessive administration or paperwork
- unproductive time on jobs
Better time-tracking and workforce data can reveal where capacity is being lost. Our CFOs can connect operational data from tracking and planning tools to financial outcomes, helping owners identify how changes to productivity, resourcing or processes could ease pressure on margins.
Related: How to find a Virtual CFO that suits Your Business?
Don’t miss Part II where we cover 5 more blind spots for owner-managers
The 5 areas discussed above all have one thing in common: they can quietly consume the resources and margin of a growing business.
But operational efficiency is only part of the picture that a strategic business review can bring to light.
In Part 2, we’ll look at five more areas where owner-managed businesses commonly benefit from CFO advisory:
- strategic marketing
- cash-flow management
- financial reporting that offers actionable insight
- identifying business-specific blind spots
- managing financial risk and compliance
Stay tuned.
Get in touch
You may think you don’t need a CFO 5 days a week, 52 weeks a year. But exec-level financial leadership that is both objective and independent is crucial to pressing pause and identifying where your profits margins are being compromised—or sacrificed—as the case may be.
Our team of CFOs is a diverse group of professionals, each with a wealth of experience in various industries. From finance and accounting to strategy and business development, our CFO experts are equipped with the skills and knowledge necessary to drive your business forward. To learn more about our interim or virtual CFO services, get in touch with our team.
DOWNLOAD OUR GUIDE TO ENGAGING A VIRTUAL CFO ⬇️
This article is intended to provide general information only, and is not to be regarded as legal or financial advice. The content is based on current facts, circumstances, and assumptions, and its accuracy may be affected by changes in laws, regulations, or market conditions. Accordingly, neither CFO Australia any member or employee of CFO Australia or associated entities, undertakes responsibility arising in any way whatsoever to any persons in respect of this alert or any error or omissions herein, arising through negligence or otherwise howsoever caused. Readers are advised to consult with qualified professionals for advice specific to their situation before taking any action.
