To make a profit, the business needs to focus, not on breaking evenAnd Not on survival, but on business profitability — literally, the company’s “ability” to target and produce a specific dollar amount of profit as a percentage of expected total income. Only when this is the clear business goal can a business be built that can make a profit for the owner year after year. Only then can this business truly become a continuing income-generating asset for the owner. How is that done? How can a business become a profitable asset? Show me the coins! Most small businesses are profitable in nature. Depending on the business, there is already a reliable 10% to 30% of annual turnover as a potential and ongoing profit return on the company’s investment. But where is this profit? Why is it so hard to see, let alone produce?
As a small business advisor to a major consulting practice, I’ve always been amazed at the number of small and medium-sized businesses that run the ledger and aluminum box for cash. I was distraught at using a computer only for online email, client letters, and office décor. Accounting software (QuickBooks or Peachtree) was on the computer for tax purposes that the accountant used at tax time. As a consultant, I have been able to help small business owners realize that the most effective way to run a profitable business is to plan for profit. By making the owner understand that expenses and sales are to be planned towards a target and controlled events in such a way as to achieve the profit target. By not observing the profit and loss statement, the business events control the owners, and the management cannot drive the process and actions toward profits. Accounting software packages were then prepared to display each product through profit and loss statements on a monthly and yearly basis. This allowed the small business owner the ability to quickly respond to any deviations from their budget plans (cash through the cracks). The organization learns from the feedback it gets by comparing budgeted targets to actual results (revenue decline). Increased communication throughout the organization about employee expectations toward profitable goals.
Owners, when was the last time you updated your business plan, which is probably on your bookshelf where you’ve placed it since you initially developed it. Now, don’t get stuck in the document, just remove it and use a red pen to ask yourself the following questions:
Profit Planning: Budget vs. Business Plan
Has the management team updated the business plan to reflect the current/future market industry “realities”?
Does my management team understand the “market intricacies” of each product they sell and service in the business unit they oversee?
Does my management team understand the “customer’s” product needs and wants to be sold and serviced in the business unit they oversee?
Have you developed a profit and loss statement for each product? What are the sales revenue, direct costs, and overheads for each product?
Have you measured your gross margin against industry standards? Is it high or low?
How are your product sales trending? my quarter? Does the product cost percentage decrease as the volume of products increases? If not, the workflow can be simplified.
Is my business making money? Do I have a simple business model that is profitable for each product?
Have you pitted your best-selling product lines against your best-selling products? Select a product that will grow your business?
Has your management team developed action plans to achieve specific product profit goals and objectives in the target areas?
What is the current morale of the staff? Who will stand up for the “profit program” they believe in?
What are the current “barriers” to reducing cost and increasing product yield? Why?
What are the training needs of my employees to achieve profit goals? How will training improve work or morale?
Do employees know what is expected of them? How will they be held accountable for performance?
How will they be rewarded? Do you plan to give incentives, increased profit sharing, surprise bonuses, or spontaneous intangible assets?
Did your manager and supervisors set specific production goals and objectives in the target areas?
Are my employees cross-trained in key production areas (growth products)? Why not?
Do I have a financial metrics scorecard posted in the work area? Do I have related workflows published in the work area?
Do we have the best technology solutions to reach profit targets?
Has my customer base changed?
Has my product/service offering changed?
How often/how many new clients did you get in the last year?
What product do my customers need to solve their problem? What services can we provide for convenience or we can reduce product cost?
Are there any solutions outside of the industry that would “wow” the customer? Is the marketing strategy relevant to the customer’s desires?
What is the company’s reputation to the client? If it is low, how can we improve the reputation and brand image in the market?
Do I know who my best clients are? What do they really want?
Do I have more/fewer clients? Why did they go?
Who are your current “bad customers/customers”? money owed? Should I keep it or sell it?
Do I have new competitors? from?
Do I have more / less than competitors? Why?
What are the current competitive threats to my business?
How does my competitor solve the customer problem? from?
What industry has the best innovative solution to meet my clients’ needs? Why? suitable?
What technology is a competitive threat to my best selling product?
Evaluate the answers against the strengths and weaknesses of your business ability. Formulate your strategy according to the available market opportunity. The game is about making money in the long run, not knowing how many instruments you can “hide” at the end of the month or playing financial engineering games with books.
It’s never a good idea to lower your rate, even during tough economic times. If you lower your prices, do so only for a limited time to encourage customers to “act now.” This should be the last effort.. The temptation to lower the price in difficult times is great. Ask your management team, “If we lower prices, how will you raise prices when the bad times are over?” Stay on message. Your value does not diminish in difficult times. Why is your price going down? Companies should focus more on customer satisfaction. By focusing on delivering more than you promise, you are putting the customer first. reinforce their decision to buy.
Find companies you can partner with to cross-promote your products and services while sharing costs. For example, a laundry mat provides free detergent with every washer load and the free detergent is paid for by both the laundry mat owner and the detergent supplier. The price is not reduced, but there is a unique incentive for the customer with a specific start and end date, which will cause the customer to “act now”.
Plan to profit from sales this year. Explore new markets, new horizons, new products and offerings. This year, the three pillars of marketing your business are: prospects, products, and presentations. All three may need to change up a bit to get you through a profitable year.
you can do that. Surround yourself with mentors who you can talk to to plan for success. It’s amazing the difference just talking through your thoughts makes. Think of planning as setting yourself up for success with a clear picture of profit in mind.
As you review your business plan, ask yourself where you can sell your product or service. Refer back to customers who haven’t bought from you in a while. Have a compelling reason to buy from you now, such as improving service, different products, or increasing customer satisfaction to name a few. Is it possible to enter new geographical markets? Have any of the competitors left in this market or “let go of their pockets, waiting for better times”?
Update your offers
After reviewing your business plan, is it necessary to change or update your product or service offering? Will changes or additions to your product or service allow you to sell more to your existing customers? “Refresh” here might mean redesigning your website, starting a blog, and joining a social network. Basically, any way you can expand your reach to potential customers. The reason for the closure of newspapers across the country is due to lack of readership. People are turning to the Internet to get their news, information…and find your business!
Improve your presentation
Fully understand your product and service and why someone should buy from you. Use written testimonials from some of your satisfied clients.
• Tell your story in five minutes or less.
• Practice perfecting your presentation “before” the sales call.
• Listen carefully. Ask questions and really listen to the customer’s needs and interests.
The whole point is practice makes perfect. Become an expert client communication practitioner. You are the owner. Your time, care, and communication in the sales process will get results. In these times, you can be persistent and focus on looking for new opportunities that will generate huge profits when the economy turns around.
Our nation is in a recession and has been in a serious, prolonged recession for the past decade. According to Tom Riley, MissouriBusiness.Net, “Seventy percent of today’s CEOs have never led a company in or out of a recession and 60 percent of today’s salespeople have never sold into tough times.”
On every championship team, great coaches must receive accurate information in order to adjust their strategy to win the game. To be a truly great small business, you must operate from a core value of honesty toward strategy and profitability. Remember the old management adage “if it doesn’t measure, it doesn’t get done” and “missed opportunities” (bad decisions) can shut down your business. Planning profitability is a proven business method that allows your business to measure whether it is succeeding or failing, not smooth-talking inexperienced CEOs, and presenting the latest management theory of the month to the board of directors.
Remember, Enron, WorldCom, George S. May International, Arthur Anderson, and Tyco.