Profit, that wonderous word all our businesses desire even more than sales. If I ask an owner why they are in business, a great majority of the time the answer is to make money. I did not realize we were all in the printing business. Although we all want profit, we cannot get to it until we have consistent recurring revenue/sales to extract the profit from in our businesses. Additionally, we can only extract profit by managing the expense of the business so that rather than profit being what is left over after expenses, we target and identify the value the business profit should be making and then operate our business with the remaining dollars to cover our expenses. Unfortunately, the accounting world has trained us to believe that profit is the result of revenue – expenses. I would challenge your business in 2021 to rethink that equation and take profit first from revenues and learn to operate your business leaner and more cost effective.
At JKL Associates and many of our clients, we practice the “Profit First” method of managing our business finances. There is a book by my colleague Mike Michalowicz of the same name which I will encourage you to get a copy of if this interests you. We would also be open to giving you our view of how this has successfully crafted a cleaner decision-making financial model for JKL Associates. If you want a real deep dive into this approach beyond the book, there are certified Profit First Professionals which could assist you with this method/approach.
If your discovery of what to Fix This next identified Profit as your next focal point to work on, then first I need to congratulate you on placing the sales level into a good cash position. This provides the air your business breathes and now our body (business) needs to use that air most effectively. Again, through a series of questions you need to peek further into your Profit dynamics in your specific business. Let us start with debt. 1) Are you consistently and strategically reducing debt or are you accumulating it? In small businesses I see an evil trend of credit card use to start up and carry a business. The venture from the start might very well have been under capitalized and credit cards are floating the business. This debt is not only expensive on interest rates, but it accumulates little by little until you have a whopping number and have maxed out the limits. The credit card companies are masters at selling owners on the perks of their cards. Miles, trips, bonus etc. all are pennies on the dollar for the credit card company, but it is baked into the interest rate of 7% to 21% your cards accumulate each and every month. You need a plan to address this if this is part of your profit erosion. 2) Are your products and services priced with proper margin to contribute properly to your organizations expenses to allow for profit to exist? This is a bit deep to try and give a simple answer as each business has its own set of complexities etc. If you have never evaluated your deliverables from a margin perspective, now is the time. You might very well discover that some of your products which you thought were great contributors to your profit are actually losing or stealing you blind. 3) Once you have a good understanding of where your debt is, and your margins are appropriately set to your product/services then you need to look at relationship frequency – how are transactions contributing to profit. Part of that is sales – creation of cash, part of it is gathering the cash in (receivables) and part of it is tied to you delivering on your “Promise” so that recurrence of cash continues so that stability can be realized. At the end of the day, profit gives your business stability to operate into the future.
This week take some time to evaluate profit from the perspective of having the business work for you rather than you only getting the left over from the business after expenses.
Need a third party set of eyes to cause you to look differently at your profit? Give JKL Associates a call at (313) 527-7945 in Michigan or (407) 984-7246 in Florida or go onto our calendar below and schedule an initial meeting which works best on your busy schedule. JKL Associates looks forward to continuing to build relationships rooted in “Purpose.”