Knee deep in the ocean, guess what bit me. 

Over the summer like many we went to the beach. We love to walk along the edge of the ocean and paddle, we can’t always see where we’re walking because the waves make the water murky and stir up the sand. Something grabbed my foot on my instep. I was so surprised, and it hurt. Not knowing what was happening other than pain, I leaped out of the water and scurried back to the safety of the beach. I looked as if I was walking on the water. 

It was a crab! The crab pincer grabbed my foot on the instep as I was about to step on it. That crab tore into my foot as if I was its prey. It scared the heck out of me and wow it hurt. I’m sure I didn’t do much for the crab either!

Just because you can’t see the danger, doesn’t mean it doesn’t exist

Every decision, every step we take, carries the potential to either propel our business forward or lead it into the unseen pitfalls that are often lurking just out of sight. It’s easy to get caught up in the excitement of growth, innovation, and the pursuit of success. Yet, amidst the hustle of daily operations and the pursuit of revenue, there are often unseen risks and missteps that can jeopardize a company’s profitability. It is essential for business owners and leaders to be proactive, to carefully examine the terrain before making decisions, and to anticipate risks that may not be immediately apparent. This applies not only to physical dangers but also to the more abstract challenges businesses face such as financial risks, strategic misalignments, and operational inefficiencies.

Hidden risks come in many forms

We might not see the danger right in front of us, but that doesn’t mean it’s not there. Just like the crab hidden in the sand and in murky waters. These dangers might come in the form of cash flow problems, customer attrition, rising competition, or inefficiencies in operations. Sometimes it might be the hidden costs of growth and scaling the business. As a business grows, the business model may need to change and evolve. Systems can fail, leaving a company in a precarious situation before they even realize it.

When I was out running, the path in front of me looked clear. It was a beautiful morning; the sun was shining, and I was running along happily listening to my business development book on audio when the next thing I knew I was smack on the ground and dazed. The path was in the shade and was dark. What I didn’t see in the shadows was a tree root that had made the path uneven. I didn’t notice it. 

In business, it’s important to pay attention to the small signs, the things we often overlook or don’t really notice until it’s too late. Whether it’s minor cost increases, misaligned customer expectations, or shifts in market dynamics these can eventually snowball into bigger issues. By understanding the importance of vigilance, we can avoid stumbling into these financial traps that could undermine profitability and are hidden in the shadows.

5 Critical Areas to Drive Profitability

There are critical areas business owners should focus on to ensure long-term profitability and avoid falling into hidden traps. These focus points are designed to help spot the potential risks before they become threats to our business.

Cash Flow Management

Cash flow is one of the most critical aspects of running a successful business. Itkeeps our operations running, pays our employees, and allows for reinvestment. Many business owners focus too much on profits and not enough on cash flow, which can lead to devastating consequences.

Beware of net terms: One of the challenges I have observed with clients is a business that has high sales but also faces significant payment delays from clients. They may be profitable on paper, but without cash in hand to cover operational expenses, it may struggle to survive. 

Regular cash flow forecasting, understanding when money is coming in versus when it’s going out, and identifying potential cash shortages can help prevent these hidden risks. Effective cash flow management ensures that the business can meet short-term obligations while also investing in long-term growth opportunities. Where possible, save a little for the ‘what ifs’.. what if there is an opportunity as well as what if we hit a snag. 

Watch out for sales growth and pricing of materials: I’ve seen this so often particularly in construction and trades. The sales revenue keeps driving up which is brilliant except it can mask the true price and cost structure. It’s only when there is a lull in business does this cashflow challenge rear its ugly head. Materials and labor costs go up on a regular basis. Keep an eye on these numbers to not get bitten!

Customer Retention

Many businesses get so focused on chasing new customers they forget about the ones they already have. Customer attrition and losing existing clients can be a silent profitability killer. It can be easier and more cost-effective to retain existing customers than to constantly acquire new ones.

Customer loyalty is an essential part of the revenue cycle. By improving customer satisfaction and building long-term relationships, we can ensure that our customer base remains loyal and engaged, creating consistent revenue streams for the business. The key here is to maintain regular communication, whether in person, by phone, text, newsletters and other correspondence or offer personalized experiences. Ensure the products or services meet or exceed expectations. Loyal customers are not only more likely to return but also act as your business’s most powerful advocates and referral sources.

Control Costs

Most business owners know it is important to control costs, but it’s not about cutting expenses across the board. Strategic cost control focuses on optimizing operations to get the most value out of every dollar spent, without sacrificing the quality of the product or service.

This includes analyzing the supply chain, evaluating the performance of the team, and finding more efficient ways to deliver the product to customers. Technology and automation can play a significant role in reducing operational costs. Be mindful that the cheapest option isn’t always the best long-term solution. Focus on finding the right balance between cost-cutting measures and maintaining quality standards that align with customer expectations. Look for the bottle necks that slow down the efficiency of what you’re doing.

Be mindful of finishing on time and re-dos: One of the biggest financial loss areas is being called back to re-do a job. Make quality and excellence a focus. Project management of the task or job to finish on time is critical and going back to redo work shouldn’t be part of the workday.

Innovation and Adaptability

Stay ahead of the game, and industry changes. Stagnation can often be a silent killer. Industries and customer needs evolve rapidly, and businesses that don’t innovate or adapt to new trends and technologies risk falling behind their competitors.

Invest in education, research and development, constantly look for ways to improve products and services, and be ready to pivot when necessary. This might mean embracing digital options, developing new products, or adjusting the business model in response to changing market conditions. Businesses that embrace innovation and adaptability not only survive disruptions but also position themselves for future growth. 

We’ve seen immense changes over the past few years, some businesses have used this as an opportunity to grow and thrive such as Zoom, while others have fallen by the wayside sadly like Bed Bath & Beyond who filed bankruptcy. This then became an opportunity for another company, Overstock.com who acquired their name and trademark at an auction (need cash for this kind of ‘What If’ opportunity) and now is online retail. 

Data-Driven Decision Making

With the abundance of data available from customer behavior to financial performance metrics business owners can make more informed decisions and avoid the risks of acting without clarity. So much information can also cause overwhelm. It’s tempting to rely on gut feeling and intuition when making business decisions. However, the most successful businesses today rely on data-driven insights to guide their strategies. 

Tracking key performance indicators (KPIs) like customer acquisition cost, lifetime value, and return on investment will provide insights into areas where the business can improve. Using analytics software and experts can help gather actionable insights that can guide product development, marketing, and overall strategy. The ability to make data-informed decisions means you’re less likely to make costly mistakes based on assumptions or outdated information. Website analytics is a great example to help a business know what is happening. 

Unseen risks exist everywhere. From hidden financial pitfalls to missed strategic opportunities, dangers are often lurking just out of sight. With a vigilant and proactive approach to risk management, combined with a focus on profitability, it can help ensure that the business thrives in even the most challenging conditions.

Minimize risks and maximize profitability.

The key is to be aware, stay informed, and always watch where you step, because even the smallest misstep can have long-lasting effects on the business’s financial health.

When we take the time to evaluate our business’s internal and external environments and make decisions based on data, we significantly improve our chances of success. 

Keep out of the murky water, watch where you step so you’re less likely to get bitten!!