Last week we discussed why, although revenues are a key driver in any business, your focus should be on profitability.
If you missed part I, please read it here.
This week, I want you to imagine the story of these 2 business owners, below.
- Entrepreneur #1:
This entrepreneur has built a successful business over the last 10 years. He has adopted the right role in his business as the CEO. His team handles the day-to-day tasks and even though he’s very visible in his office, he has created the structures and systems so everything runs fairly smoothly. He can actually take a vacation!
- Entrepreneur #2:
This Entrepreneur also has a great business on the surface, with revenues in the 7-figure range. The difference here is that this business owner never truly embraced the role of being a leader, or hiring a leader, in the business. He never understood his numbers or got a team member to manage this aspect for him. If he wanted it, he bought it!
Even though revenues were high, the profits were almost non-existent. The business generated thousands of dollars in losses every year and eventually had to undergo a major restructuring.
See the difference when you focus on the correct strategy for your business. The correct strategy is to make a profit all the time!
I know some may argue about social businesses, non-profits, etc, but the fact remains that no business can grow unless it brings in more than it spends and have some net income to reinvest back into the business.
It is this creation of retained earnings over the months and years that is the fuel for business growth.
Revenues are temporary. Profits are forever!™
Let me share with you some 2 great tips to increase your profits starting immediately.
Of course, the most obvious way to increase profits is to increase your revenues. In the last issue of the Antigua Barbuda Business Focus, we looked at the 3 main ways to increase revenues.
On the other side of the spectrum we can increase your profits by looking at your costs, both your cost of sales as well as your costs of running your business, your operational costs.
A lot of small business owners simply ignore the amount of their expenses in the running of their businesses.
They diligently track revenues daily. They create stunning spreadsheets to track sales and cash. They receive sales reports daily, weekly and monthly on how much they earn, but fail to take account of what they’re spending.
And let me caution you here!
The amount of money (or cash) you have in your bank account is not profits. Yes, cash flow is extremely important in the running of your business! In fact most of the time when a business fails, it’s because they run out of cash.
But revenues are not your income and income is not cash!
To grow your business, you must take into account all the costs to run your business before you determine that your business, is in fact, viable and profitable.
So here are a couple ways to control your expenses.
You must first look at your variable costs. These are costs that change regularly and costs you may not be able to determine over a period of time. Fixed costs on the other hand are fixed in amount and costs, you most likely can predict. Even though over a quarter or a year, you may be able to budget your costs, control of your expenses is key to creating profits.
In my #1 International Best-Selling book, “Unlock the Code”, I’ve identified: “Understanding Your Numbers” as one of the primary keys that successful entrepreneurs use to create a profitable business.
So here is a Crucial step you must do, must do for every revenue stream you have.
You need to calculate exactly how much it is going to cost you to deliver that unit of revenue.
If you are a professional or you offer some type of service along with your retail products, then you need to know your hourly rate. Not YOUR hourly rate but the hourly rate of your office. As a service provider, you must cover all your costs and that includes your costs of travel, utilities and marketing.
Numbers are the language of business! If you’re going to go into business, you must know how to keep score!
However, many entrepreneurs cannot afford to hire a business strategist to analyze their businesses and the onus falls on an accountant to get the business’ figures up-to-date and evaluate them on a regular basis.
Unfortunately unless your accountant knows business strategy, then you’ll be relying on someone who’s used to looking backwards and not forwards!
You MUST know how your business is doing. You MUST know your numbers.
So, I hope I’ve given you some insight as to how important it is to focus on your profits, not just your revenues and the importance of monitoring and controlling your numbers.
Yes, revenues are crucial. Increasing your revenues is critical to any business. But your focus as is on your bottom line, your profits. If you want to grow your business, focus on profits.
Remember that revenues are temporary and profits are forever!
At PACCS Inc., we’re the only Certified Profit First Professionals in the Caribbean and one of only 250 in the world. We guide business owners and entrepreneurs in maximizing their profits through the Profit First method of cash management. This method which we use in our firm and with our clients, greatly increase the profitability of your business.
Contact us today for a free consultation and please I invite you to share your thoughts below: