What big companies worry about

If what “makes” a successful company is the combination of:

(1) Misssion: a clear purpose;
(2) Values, communicated and lived;
(3) Business Model: how to make money, something that cannot be static but evolve along with the client;
(4) People: competent, trained and committed; and
(5) Processes: customer oriented, necessary, simple, clear and supported by technology.

And success also depends on paying attention on the essential. And essential are:

(1) Growth:
A healthy business grows. Growth is the materialization of the approval of the customer to the products and services offered by the company. And growth can be achieved by winning new customers or selling more (or more expensive) to the same customers.

(2) Assets:
Assets are land, plant, equipment and rights that have cash generation potential, that can be used as see fit; and that are owned by the company.

(3) Profit:
Profit is the validation of the business model. Its existence attests to the sustainability of the business.

(4) Cash Generation:
O lucro ajustado pela variação de capital de giro, pelos dividendos pagos e pelos investimentos (capex) é o caixa gerado. Caixa é mais do que apenas uma unidade de medida, sendo o que permite a sobrevivência e a independência.  Caixa dá liberdade, permite cometer erros e concede tempo para fazer escolhas. Três perguntas que são constantemente feitas:  O negócio está gerando caixa?; De onde vem o caixa?; Onde o caixa está sendo aplicado?
Profit adjusted by the working capital variation, dividends paid and investments (capex) is the generated cash. Cash is more than just a unit of measure, as it allows a company to survive and grants it with independence. Cash gives freedom, allows making mistakes and gives time to make choices. Three questions that are constantly asked: Is the business generating cash?; Where does the cash come from?; and Where is the cash register being invested?

As opposed to the 4 essential elements of success, the main reasons for failure in business are:

(1) Do not treat the business as a separate entity;
(2) Not knowing the details of your business;
(3) Diversification towards an unknown business (loss of focus);
(4) Over-investing;
(5) To be improperly financed;
(6) Do not look around! Neglect what happens around, the environment in which the company is inserted;
(7) Think that things will improve even if there is no indication in this direction! This is a trait familiar to the Brazilians and a very risky one!

There are some basic formulas that big successful companies pay attention to:

(1) Profitability

A.  Return on Investment = Margin x turnover

i. Margin = Profit/Sales
ii. Turnover = Sales/Assets

B. Sales  (-) Variable Costs = Contribution

i. Units sold x contribution per unit

C. Contribution (-) Fixed Costs = Profit

i. Variable costs: vary with the volume of production
ii. Fixed costs: are fixed, regardless of the volume produced

(2) Investiment Decisions

A. NPV = Net Present Value
Value of the cash generated in the future by the investment discounted at an "x" rate, compared to the initial investment. If the values generated are higher than the investment, make the investment!

B. Payback period
Value of the cash generated in the future divided by the value of the initial investment. The shorter the period, the better!

C. Rate of Return on Investment
It is the rate that matches the present value of the future cash flows with the initial investment. If higher than desired rate, make the investment!

The complexity of large companies forces them to focus on what is essential, otherwise they will be lost. We can learn from them by focusing on what is essential and not falling into the temptation of copying their complexity and bureaucracy.

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At 2B Partners Consulting we aim to help companies to address the questions above thru the services of advisory board, interim management, managerial applications and consulting focused on financial advisory, operations improvement and organizational efficiency. Contact us to obtain more information by sending an email to This email address is being protected from spambots. You need JavaScript enabled to view it.