Most Companies Behave Unprofitably

While politicians and those close to government can be lynched for spying the dreaded green shoots of recovery, those further from the centre of power are free to cautiously identify indications of an economic upturn.

The National Institute for Economic and Social Research says industrial output has risen for two consecutive months for first time in more than a year, including a 0.2% rise in manufacturing output in April.

John McFall, Chairman of Treasury Select Committee, chooses his words carefully when he argues for "green roots not green shoots," and the idea that “things are coming forward a little bit.”

Rather than debating whether the economy has simply stabilised, or we are on the gentlest of upward curves, we ought now to ask ourselves just how profitable our behaviour will be over the coming months. Having focused on survival through cost-cutting and downsizing, there is now every possibility that orders will start coming through. Further, it is likely that customers will have re-evaluated their spending habits and requirements as a result of the events of the last year. How we meet these two challenges – of fulfilling a rising order book and responding to customers’ new requirements – will directly impact our profits.

A client of ours recently received a three million Euro commission for technology for an oil field about to come on line. This revenue was intended to form a substantial part of the company’s results, due to be published in the autumn. The supplier had to submit designs for client approval before manufacturing the equipment. Unfortunately, the technical design department of our client’s business was operating according to a different set of imperatives, and despite the stated urgency they assigned the job a low priority. As a result, the client did not sign off on time, production was delayed by six to eight weeks, and the invoice for this work will not be issued this financial year, meaning that 800,000 Euros of profit will not appear on the bottom line.

This is a hard learning curve for a business at any point in its history; for it to occur towards the end of a recession is even more damaging. We all have to learn to behave profitably, which means to be connected to the business requirement and to understand that every decision we make and action we take has some bearing on how much profit we make today.