Maintaining momentum

The earnings reports for the end of 2006 being released by the major listed companies are nothing less than outstanding.

In theory, if you have been operating your own business effectively and efficiently during the past 12 to 24 months, you too should have registered and should be looking at a very bright profit picture for the future.

A significant problem that many businesses face is being able to maintain their momentum.

Imagine that you are trying to push your stalled automobile. At first, the going is very hard and you would probably try a variety of techniques to get the car moving. Eventually though, as the inertia builds up, the car almost begins moving by itself with less effort on your part. The momentum increases. However, at some point you cannot get the car to move any faster; the speed plateaus. After all the hard work to finally get the car moving, you relax and reduce your physical effort. And guess what? The car begins slowing down.

A business owner, who three years ago intended to close shop, completed an expansion program during 2006.

When his business started improving back in 2004, there were mixed feelings if any revenue increases would be sustained or if shutting the doors was still inevitable. Over some months, it became apparent that the sales increase was not just a momentary blip but signaled an actual pick- up in business.

He made a conscious decision to eliminate any plans of closing and began to work out a plan to take advantage of the increased revenue. The plan focused first on how to keep things going well and then on how to grow the business even more during what looked like a period of a better climate for his products.

For one year much time and effort was invested in creating a new business model and implementing that model. New revenues were put back into the company. Most of the actual cash outlay was used to “repair” some of the damages caused by poor cash flow during the 2000-2004 period. The sales force went through a retraining program and long-neglected improvements to product packaging were done.

Once the company was brought back to pre-2000 standards, then attention could be turned to future development and expansion.

Since 2004, revenues continued to grow and profit margins increased. Total profitability is back to pre-2000 levels and return on equity has never been higher in the company’s history.

The expansion program is proving to be very successful. Revenues and earnings should grow in 2007 at historic levels for this company. With things going well, one might think that the story would stop now with a happy ending. The rough times have been weathered and in fact, the company has never been any stronger.

Now the trouble may start.

With the expansion program behind him, running the company has become routine during the last six months. After years of very difficult conditions and strenuous effort, operating this better company is not as challenging as before. Money is rolling in for a change and the company seems to take care of itself. But in fact it will be very easy for this company owner and the company to begin losing momentum.

After the hard work, things become routine. After the days and weeks become routine, complacency sets in.

The greatest corporate disaster that this owner may face is that he becomes too satisfied with the way the company is going. That is the first and most critical step to losing momentum. A loss of momentum will not show on either the top or bottom line for some time. Nevertheless, when this loss of momentum does show up in the numbers, it may be too late.

The final step in the loss of company momentum will be apathy. Complacency leads to apathy and when that attitude sets in, then the profit picture will begin to deteriorate.

If this owner is not vigilant, a small decrease in revenues or profits this quarter will lead to greater and increasing problems in future quarters.

It might be convenient to say that a good owner will wake up after one or two quarters of falling numbers and then can easily react to the situation. However, a company that has been down raises itself up, and then stumbles may be in for larger problems than before.

The staff that weathered the storm before may jump ship, wanting to be even more cautious this time. Owners can become easily discouraged if there is a downturn. Customers who have come to expect the company to continue to be vibrant may look elsewhere.

Is business better today than a few years ago? Then now is the time to be most watchful of attitudes and performances.

E-mail comments to mangun@email.com.

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