While many businesses can be profitable, not all are enduringly profitable. So, what exactly is an enduringly profitable company? According to Harvard Business Review,
“Enduringly profitable businesses are companies that are more likely to have a stable income over time. They are often low-risk, high-margin businesses that operate in growing industries and can be attractive investments.”
These are the businesses that not only weather the storms but come out stronger, providing their owners with peace of mind, a steady stream of income, and a valuable asset that can be sold or passed on to the next generation.
At Tee Up Advisors, our Fractional CFOs partner with entrepreneurs to build these Enduringly Profitable Companies, and Creating Generational Wealth and stability. We believe that such businesses are not born overnight but are carefully crafted by focusing on five key dimensions.
1. Financial Stability
The backbone of any enduringly profitable business is financial stability. This isn’t just about having a healthy balance sheet today; it’s about ensuring that your financial foundation is rock-solid for the future.
High Visibility Through the Right KPIs: You can’t manage what you don’t measure. By focusing on the right Key Performance Indicators (KPIs), you gain the visibility needed to make informed decisions that drive long-term profitability.
Rule of 30: Growth is important, but not at the expense of profitability. The Rule of 30—where your growth rate plus EBITDA equals 30—ensures that you’re growing in a sustainable way.
Fast Cash Flow Conversion Cycle: The quicker you can turn your investment into cash, the better. A fast cash flow conversion cycle keeps your business agile and ready to capitalize on new opportunities.
M&A Readiness: In a world where opportunities for mergers and acquisitions can appear suddenly, being prepared to act is crucial. Financially stable companies are always ready to seize these opportunities.
A Fractional CFO can be instrumental in establishing financial stability. They bring in the expertise to identify and track the right KPIs, ensuring that your business’s financial health is always transparent. They can guide you through implementing the Rule of 30, optimizing your cash flow cycle, and preparing your business for potential M&A opportunities. Their strategic insights help maintain the delicate balance between growth and profitability, ensuring long-term success.
2. Loyal, Recurring Customers
Your customers are the lifeblood of your business, and having a loyal customer base that generates recurring revenue is a cornerstone of enduring profitability.
High Percentage of Recurring Revenues: Businesses with predictable, recurring revenues are more stable and can better weather economic downturns.
High Customer Retention: Retaining customers is far more cost-effective than acquiring new ones. A high retention rate is a strong indicator of customer satisfaction and business health.
Profitable Projects/Engagements: Not all revenue is created equal. Ensuring that your projects and engagements are profitable is key to maintaining financial health.
Low Customer Concentration: Relying too heavily on a single customer or a small group of customers is risky. Diversification in your customer base reduces this risk.
A Fractional CFO can help analyze and optimize your revenue streams, ensuring a high percentage of recurring revenue and customer retention. They can conduct profitability analyses on projects and engagements, helping you focus on the most lucrative opportunities. Additionally, they can advise on strategies to diversify your customer base, reducing the risks associated with high customer concentration.
3. Understanding Risks and Having Mitigation Plans
Every business faces risks, but what sets enduringly profitable companies apart is their ability to anticipate and mitigate these risks.
Resilience Through Planning: Resilience is about staying in the game, no matter the challenges. As long as it’s not game over, there’s always a comeback on the horizon.
Comprehensive Risk Planning: Whether it’s interest rate risk, political risk, geopolitical risk, or even a pandemic, having a plan for as many risks as possible is essential. Do you have a plan for the risks your business faces?
A Fractional CFO is key to identifying potential risks and developing comprehensive mitigation strategies. They bring a forward-looking perspective to your business, helping you prepare for various scenarios—from interest rate fluctuations to geopolitical instability. With a Fractional CFO’s guidance, you can ensure that your business remains resilient, no matter what challenges arise.
4. Strong Leadership and HR Practices
Great businesses are built by great teams, and great teams are built by strong leadership and sound HR practices.
“Everything rises and falls on leadership.”
Leadership is Everything: As John Maxwell famously said, everything rises and falls on leadership. The more leaders you have—and the more leaders you build within your organization—the more resilient your business will be.
Unified Teams: A business thrives, especially during crises, when the team is unified and pulling in the same direction. Strong HR practices ensure that your team is engaged, aligned, and motivated.
A Fractional CFO can play a critical role in developing strong leadership within your organization. They can work closely with HR to ensure that the financial incentives and structures are in place to build and retain a high-performing team. By aligning financial goals with leadership development, a Fractional CFO helps create a culture of accountability and strategic thinking that permeates throughout the organization.
5. Aligned Stakeholders
Enduring profitability isn’t just about what happens inside the company—it’s also about ensuring that all stakeholders are aligned with the company’s vision and goals.
Board and Investor Alignment: Are your board members and investors on the same page? Misalignment can lead to conflicts that derail progress.
Lender Relationships: Maintaining strong relationships with lenders is crucial for financial stability, especially in times of growth or crisis.
Family Alignment: If your business is part of your family’s wealth plan, it’s essential that your family members are aligned with the pace and direction of business growth. How does your business fit into your overall wealth plan?
A Fractional CFO can act as a crucial mediator between different stakeholders, ensuring that everyone is aligned with the company’s goals. They can facilitate communication between the board, investors, and lenders, ensuring that financial strategies are understood and supported by all parties. Additionally, they can help align your business operations with your family’s wealth plan, ensuring that both the business and your personal financial goals are in sync.
Building a Legacy
We believe that an enduringly profitable business isn’t necessarily about explosive growth. Instead, it’s about building something that will still be around 10, 20, or 30 years from now. It’s about creating a business that can be passed down to the next generation—should they want it—or, if not, ensuring that enough wealth has been created to support their dreams and aspirations.
At Tee Up Advisors, we’re here to help you build that enduringly profitable business. Let us partner with you to create a legacy that will last. Contact us at info@teeupnextgen.com to start your journey today.
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