Introduction

There is no denying that profit is the lifeblood of any business. Whether it is a startup or an existing one, achieving profitability is the goal. In this article, we will be discussing the profitability project mindset that can help any small business achieve this feat.

By adopting this mindset, you will be able to identify and assess the strengths and weaknesses of your business, set realistic goals, and take the necessary steps to achieve them. We will also provide you with essential tips on how to measure your progress and stay motivated throughout the process.

Background

Experts agree that customer satisfaction is a huge catalyst in getting new business and repeat business. In a simple retail cash business, it is easy to meet customers’ expectations. However, as the processes required to fulfil orders become more complicated, the tougher it becomes to meet the customers’ expectations. In fact, experience shows that the processes may get in the way of customer delivery, which leads many small and, in some cases, established businesses to abandon the established processes to fulfill orders. Regular readers of this blog will identify that a lack of process is a recipe for disaster.

Proper project management and reporting is a very efficient way to ensure that internal processes do not get in the way of gaining customer satisfaction. However, studies show that over 80% of small businesses do not formally consider project management to be an integral part of the business and can quickly get into a lot of financial and legal trouble, especially where there are conditions around lack of delivery or if advances have been paid.

The misconception is that a project is a huge construction activity that lasts for years. However, every activity that has a beginning, a process, and an end is a project. It can last for a few hours or be as long as a few years. It could be one-off or ongoing. Billing terms may vary from time-based, materials-based, fixed-fee, or milestone-based. The point is that there are distinct types of projects, and it is important to quickly discern a project’s attributes to be able to manage it effectively. Having that mindset can quickly distinguish a struggling business from a healthy one.

Issues around improper project management

Some of the more common results from a lack of proper project management that businesses constantly face include:

1. Significant delays in completing customer orders are frequently the result of failing to consider the completeness and availability of order requirements to ensure a quick turnaround.

2. Utilization of project resources for other projects or functions within the business. For instance, using a customer’s advance to pay salaries/overhead rather than purchasing project-specific items.

3. Constant losses, especially from projects that seem lucrative. This comes from not considering all the costs a project will require, by inaccurate cost estimates, or just a general lack of proper planning and monitoring.

4. Constant rework might lead to unnecessary duplication of time, effort, and spending on a project.

5. Unable to deliver to customer at all.

6. Unpaid balances or huge receivables from unsatisfied customers.

7. Huge accounts payable balances to meet up with projects.

8. Constant requests for refunds from customers

9. Legal action/liquidated damages against the business.

The common theme here is a loss of goodwill. Small businesses need to have a full appreciation of the benefits of having proper project management as an essential business operational tool and see it as something that aids business.

With a project manager’s mindset, one of the key results is ensuring project profitability. It is crucial to understand an individual project’s profitability as well as the profitability of several types of projects clearly and quickly. Project profitability is usually a collaborative effort within an organization, but leadership must set the right framework and policies to ensure proper project management. Bill the right fees for the project and assign the right level of resources.

Businesses should not fall into the trap of aiming for positive outcomes (winning contracts, receiving client orders) with no clear structure or consistency around how to achieve them.

Recommendations for the project mindset

Below are a few recommendations to help avoid the constant losses or low profitability associated with improper project management:

1. Account for costs.

Properly account for all cost estimates before a project starts to ensure that the revenue earned on the project is adequate. Obviously, the consequence of having insufficient revenue on a project is that the business will either use its own resources to complete the project or not complete the project at all. It is important to include all potential costs that the project requires, including some level of overhead and a buffer.

For example, a client of mine typically estimates all its costs for a project and adds a 55% markup when billing. It includes a buffer to ensure that, in the event of discounts, the markup is never less than 40%. It may be difficult for less established businesses to accurately estimate their project costs or negotiate adequate billing but having the mindset to avoid running at a loss (except in a few cases) is crucial to the long-term financial health of the business.

2. Standardize the processes in accordance with the company’s strengths and capabilities.

This is a particularly important aspect in ensuring quick(er) turnaround of quality products/services for customer satisfaction. With a standard process in place, diligently followed and communicated to the customer, there is every likelihood that the project will be on track.

Unfortunately, for many small businesses, in a bid to land customers, there is a tendency to accept jobs, orders, and projects that take them away from their optimal competencies. This can lead to unnecessary delays in project delivery. It may be foolhardy for businesses to turn down all potential revenue opportunities just because they do not match 100% with their core competencies, but they must seriously consider the potential impact of that deviation. A small deviation may cost a business a significant amount of money and, if not properly tracked, will lead to project losses.

For example, a business that produces doors to order has considered the optimal mix of resources to create the standard door dimension within 48 hours. A slight deviation can add considerable time to the production and delivery period. While the company is not rigid, it clearly communicates to the customer that they will have to pay extra and that there is a longer lead time.

3. Have the right capacity.

Similar to the second point above, an essential tip for small businesses regarding projects is not to punch above their own weight. It is difficult for a business to meet service delivery standards if it does not have the resources to complete the project. It may also not have the capabilities, even if it has the resources. Businesses can maximize returns by completely fulfilling their duties for projects within their scope and gradually scaling up as needed. This does not mean that businesses should not accept potentially challenging opportunities, but proper planning helps avoid failure on project delivery.

For example, an accounting services firm had the resources to deliver services in relation to financial and accounting matters but lacked resources in the tax management space. In a bid not to lose the client, the firm accepted a tax management services contract and performed poorly on the job, which led to negative impressions, unpaid balances, and bad reviews.

4. Tracking all actual activities on a project with the cost element.

To avoid surprises and a potential loss-making situation, it is important to track and record every activity that happens on a project. This is particularly useful in monitoring situations that go beyond the budgeted activities/cost.

5. Embrace automation in tracking and recording project activities and costs.

One of the significant difficulties faced by small businesses and startups is the timely, accurate, and complete capture of their business activities, but using automated solutions to capture, analyze, and store project information in real-time helps counteract this problem. I have written extensively about the importance of software here. For small businesses, the cost of acquiring dedicated project management software may be exorbitant. However, many new-age accounting solutions have the capability to record and analyze information by project.

6. Ensure that the supply line for all project resources is always open.

A commonly observed problem is that businesses do not ensure that all the resources required to complete a project are available prior to (or will be available throughout the duration of) the contract. This applies to materials, time, finances, etc. After signing a contract, it is common to hear the excuse that the people or materials needed for the project are unavailable!

7. Invest huge advances from customers in short-term instruments if there are significant delays in the project.

Due to cash flow constraints usually faced by small businesses, there is a tendency to divert funds collected from customers to other areas of the business. It is more prominent when, for some reason, there is a delay in the project. Depending on the type of project, it is advisable to purchase all the necessary items first. If that is not possible, I recommend investing the funds in short term callable instruments where the business can enjoy the investment returns. The business is safe when the project is ready to commence or if the customer requests a refund.

8. Review.

At the end of every project, do a quick review of what went wrong on a project or what went better than planned. Even with the best-laid plans, some things may still not go according to plan. Learning from what happened on a project contributes to understanding what should never recur, what to adjust, or what to add to improve the quality of the process and the output.

9. Communicate, Communicate, Communicate.

There is always an advantage to communicating early and effectively with every project stakeholder at every point of the project.

For example, it is sometimes a bit of a surprise to find out that an order is taking too long to fulfill just because the logistics department did not get information that there was a delivery to be made.

While that is a simplistic example, it highlights the importance of identifying and updating everybody involved timely enough so they know what to do. It is also important that there is an open feedback mechanism in place to ensure that all project stakeholders can report their progress in real-time and have it factored into the overall project plan.

Benefits of the proper project mindset

When it comes to project execution, everything can get murky extremely fast, which always adds to the cost. But when done right, some of the advantages to gain include:

1. Cut project delivery time significantly.

2. Transparency into labour costs and profitability.

3. Savings in resource allocation

4. Making better-informed decisions

5. Client service levels, staff utilization, and vendor relationships are all optimized.

6. Facilitated data-driven decision making by providing accurate, timely information to optimize project profitability and billing utilization.

The overall goal is customer satisfaction, which we will achieve by developing a standard, repeatable, automated process that ensures all activities required to deliver are completed on time, completely, and accurately, and in a cost-effective manner, thereby increasing revenue, profitability, and goodwill.

Conclusion

After reading this blog, you should be convinced that every revenue activity is a potentially profitable project if executed well. As a small business owner, it is your duty to continuously strive for profitability and increase your company’s bottom line. Considering everything as a project and narrowing down the focus to only the most important tasks will help you achieve success much faster!

As a strategic advisor to the business, your CFO can collaborate closely with the operations team to have a significant impact on project profitability, which should translate into business profitability and growth. The CFO can assist in instilling the best practices necessary to advance to the next level.

Why not reach out to myCFOng for help? We are here to help you get the most out of your revenue activities!