As a business owner, do you feel as though you are not making the kind of money that you’re worth? Does the thought of tax season strike terror through your core because of the uncertainty that you will be able to pay taxes? Have you not performed a profit distribution in years? Have you been convinced that the best way to expand your business is through investors or bank loans?
If you answered yes to any of these questions, it is time to develop an intentional focus on profit. A deliberate and calculated approach to your company’s profits could help to save you some money and ease the pressure on you as a business owner.
Below are 5 ways that you can intentionally focus on profits:
Know Your Financials
As the owner of a business, you should have a basic understanding of your financials: income statement, balance sheet, cash flow, etc. In some situations, that is easier said than done. However, it’s still imperative to your company that you understand how to read the financials. The greatest challenge to this is having up-to-date financials. Simple accounting software can generate these numbers for you, while a respectable accountant can take those numbers and make sure that they are accurate. If you don’t have something to compare these to, the financials won’t mean much at all. At the very least, understanding revenue, expense, profit, and cash flow compared to last year can help. Being able to take the information and make changes that will help increase profits is very important.
Regular meetings should be held to discuss your financials, with key personnel in attendance. It's important that you can lean on other people in your company to help you make important decisions and changes regarding the financial future of the business. Don’t throw aside the assets that you have. Make sure that you are using them all. The hardest part about this process is determining a benchmark for meaningful information. If you can’t understand it, it would be impossible to do. But if you have assets by your side who can assist in the process, make sure to use them.
Once you have a basic understanding of revenue, gross or operating margin, and profit, you can better understand your successes or failures. If you aren’t saving any cash for taxes, bonuses, distributions, inventory, or property and equipment, you could be in trouble.
The “Profit First” Dashboard
Mike Michalowicz’s book, Profit First, is an important read for anyone leading a business or working with business owners. His recommendation is to open separate bank accounts for profit, revenue, tax, operating expense, and owner’s compensation/payroll. You can even open a profit hold and tax hold savings account at another bank and keep it out of sight. Each quarter, you take half the money from the profit hold account for a profit distribution. Of course, the tax hold account is used to pay quarterly taxes and ensure you have enough for annual taxes.
I think this is a brilliant idea because it gives you a daily cash dashboard. You know where you stand and how much to spend for payroll and operating expenses. You can even open other accounts for inventory, equipment, or possibly reimbursable expenses. The dashboard allows for quick decisions, peace, and a sense of control over your finances.
Plan for Success
If any business wants to be successful, they should create a business plan that outlines everything that happens in the business along with the goals that they want achieved. I’m not talking about a business plan that you write up for an investor or bank and then never look at again. No, I’m talking about a plan that outlines your revenue by product, customer, and month. A plan for launching new products and closing sales. The plan should discuss potential hires, profits, expenses and cash flow. It should always give you a reasonable goal to reach.
A plan allows you to hypothetically design the future. It allows you to put a plan in place that can help you reach the goals that you have designed for the company. Having a detailed plan to guide your business is a big part of intentionally focusing on your profits while simultaneously reducing the chaos throughout the company.
Value Your Time
I can’t really talk about profit without talking about time. Of course, you know time is money, right? The hardest thing for entrepreneurs and business owners to do is let go. If you are doing something that you can pay someone $20 an hour to do, then why don’t you delegate it? Most business owners are worth $100-$500 per hour depending on the size of their organization. The more time you spend working on the previous four ways to make a profit, the more valuable you can be. You have to be strategic, focus on business and product development, and train your team. If you do these things, you are providing even more value to the company.
Every business should be in it to make a profit. Using your resources to accomplish your mission in the most cost-effective, efficient and impactful way is the goal of basically every organization. Understanding your financials, performing regular checks, creating a “profit first” dashboard, planning for success, and valuing your time are all ways that you do this. These tasks, although time-consuming, will allow your business to serve your customers and community more effectively.