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Wednesday, June 11, 2014

How Do You Make Your Money?


This seemingly innocuous question served me very well during my days as a management consultant.

Simple to ask, but not so simple to answer, it always provided tremendous insight to my clients’ understanding of their business and the challenges that led me to be sitting there with them. If they couldn’t answer the question beyond the obvious, I knew I had more to deal with than just a business issue; I had a leadership issue, too.

I once had a client who was a Senior Vice President for a Fortune 200 organization. This deeply experienced executive asked my team to help solve a particularly thorny supply chain problem in his business. We had our experts combing over their sourcing, warehousing, inventory management, order management and transportation processes, looking for inefficiencies and a definitive diagnosis to his company’s challenge. As I shared some of the team’s findings with this executive, I posed my question. To my surprise, this senior executive was focused in all of the wrong areas; he had a completely different view of his company’s critical success factors than his CEO.

This bit of insight completely changed our assignment. It quickly became clear that our executive’s thorny problem was actually himself. He ran into issues, not because his supply chain was wrong but, because his understanding of the business was wrong.Once we helped him see the misalignment he had with the rest of the executive team, adjusting the supply chain to match what the rest of the business was trying to accomplish became very easy.

Now that I have moved from management consulting to the accounting world from management consulting, this question is even more relevant. Whether our client is a business, a business owner, a family trust, an individual, or a combination of several, understanding how our clients make (and how they can keep) their money is paramount to both our clients’ and Armanino’s long-term success.

As I said earlier, this understanding is not always pervasive among our clients. That’s okay we can help. Because we need to understand the answer in order to provide for you the best insight and guidance, our professionals will make sure we walk you through the process as we gain our understanding so that we are both on the same page. The most important thing is that the true drivers of both gross and after-tax net income are identified, understood, appropriately planned, and managed.

These are not always obvious, and sometimes have very little to do with how the business operates. In the Fortune 200 example, our supply chain executive was tightly focused on improving the firm’s balance sheet through just-in-time sourcing and keeping minimal inventory on hand. This was his view of how to make money for the company. The problems developed when the company’s overall strategy of customer intimacy as a marketplace differentiator was difficult to accomplish because the right inventory wasn’t in the right places to ensure customer satisfaction and loyalty. The symptom was inventory; the problem was not understanding how the business plans to make money.

So, how do you make your money? And, just as important, how do you keep it once you have it? I encourage you to reflect upon your own situation and ask yourself how well you can truly answer these questions. In the pages that follow, you will read perspectives from Armanino leaders on both of these vital questions. Hopefully, their insights will give you additional clarity on a seemingly simple, yet so challenging, concept.

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