Updated: Aug 4, 2019
Our core philosophy in managing our business as well as for consulting with business owners, is the same. We examine critically what we believe to be the three major functions of any business— Marketing, Production, and Accounting:
Marketing is the function of business that brings customers to your door and culminates in some sort of sale.
Production is the function of business that deals with customers from the time of the first sale through the entire life of the relationship.
Accounting is the function of business that gathers data and information from all the different aspects of the business.
Systems & Profit
The overlapping of the different circles indicates that little interaction occurs among the different functions:
Marketing and Sales are occurring, but no one tells Production of big new contracts that have just been signed where customization is involved.
Production might be rolling along with no idea what costs are associated with producing certain final products. Or, the wrong products might be produced compared to which products are selling.
The accountants seem to be tied to their desks, and never visit either the production floor or visit a potential customer with a sales person.
Within the separate functions, everything seems to be going well, except for the complaints about the other departments.
In Phase II of the Universal Business Model, synergy begins to occur. Some communication takes place among the three functions, and it helps. It is certainly better than Phase I. In this case, profit is still smaller than it should be, but certainly bigger than it was in Phase I.
In Phase III of the Universal Business Model, illustrated here, the three major functions are working together well, and the goal to maximize the area in the center core which represents profit is being fulfilled. It is impossible to maximize profit without the three functions interacting well with each other. And as you can see here, profit is much bigger than it was in either Phase I or Phase II.
My chief observation, in all the years that I’ve been doing this, is that most businesses do very well in one of the functions, partially well in another, and not well at all in the third. Accounting is most often the one function that falls to the bottom of the list. This means that without proper guidance, many unprofitable decisions could be made.
Michael Gerber, in his book The E Myth, described new businesses as having been started by a technician who had an “entrepreneurial seizure.” They understood the technical side of the business, but were weak in Accounting. They may have learned early that Marketing and Production were vital, but were slow to add Accounting. Accounting is usually a BIG problem, especially for new or small businesses. And my mission is to have my clients not think of accounting like an afterthought. It’s more of a habit. And it’s more difficult to unlearn a bad habit than to start a good one from the beginning (or from wherever you are in the process).
The emphasis that I make is on making all three major functions work together, focused on business goals. A secondary emphasis will be on using the accounting function to provide the information that you or your operational managers need in order to see the whole picture of what is happening in the company or your departments, whether good or bad. Sometimes these separate functions work well alone, but seem to have problems working together. Maybe you have been in situations like: Sales are great, but production is working on “overload,” and customers aren’t paying for their purchases. Sometimes you don’t even know if you are making a profit! It is quite the dilemma. Increased sales are not always the answer, but they certainly help. Margins need to be in line, and expenses need to be under control.